Report: Bay Area office market heats up despite vacancies; conversion projects eyed

While office markets in the Western U.S. continued to navigate high vacancies and pricing disparities in May, the Bay Area stood out once again, becoming the priciest market in the region with assets trading at $356 per square foot, second only to Manhattan nationally, according to a new report from Commercial Cafe.

The Bay Area market also surpassed $2 billion in office sales year-to-date, ranking it third in the country. The same report looks at office conversions to apartments and commercial space.

Other key highlights from the report: 

• San Francisco led the West in rent growth, up 3.7%, year over year,  to reach $63.01 per square foot, the second-highest rate in the U.S.
• Despite being overtaken in active construction, San Francisco remained a long-term development hub, with current and planned office projects accounting for 5.1% of its total stock.
• The Bay Area posted the fourth-highest vacancy rate in the nation at 25%, up 500 basis points, year over year.
• Office attendance averages 43%, according to Kastle’s Back to Work Barometer.
• Despite some high-profile lease signings and speculation that a burgeoning AI sector would drive a recovery in the region’s office sector, Northern California is still struggling with high office vacancies.

As for adaptive reuse, there are currently 1 million square feet of proposed conversions in the market in San Francisco. San Francisco is looking to increase this number with its Commercial to Residential Adaptive Reuse Program, which includes tax waivers and fee removals, according to the report.

The city recently approved creating a downtown revitalization financing district, which will incentivize conversions by reinvesting the increase in property tax revenue to offset development costs. The New Humboldt Residences, a property located at 785 Market St., is currently in the process of being converted into 120 units of housing, the report notes.

Read the full report here: https://www.commercialcafe.com/blog/national-office-report/ .