Economic pause prompts reduced demand and increased supply
- In response to the COVID-19 pandemic, a nationwide shutdown of most economic activity permeated throughout the quarter, with the San Francisco Bay Area facing among the strictest lockdowns. Initially, the office market was not hit as hard by the economic shutdown. However, the impact was felt in Q2 2020 with decreased office demand, rising sublease space, negative net absorption and falling rents.
- Many occupiers who were active before the COVID-19 outbreak, pressed pause to reassess their growth plans in Q2 2020, causing overall demand to decrease by 60% since early 2020. Additionally, there has been approximately 11,000 announced layoffs of San Francisco-based employees by tech firms.
- Vacancy and availability rates rose 260 basis points (bps) and 340 bps, respectively during the quarter. The primary driver of this increase was the addition of nearly 1.8 million sq. ft. of sublease space, accounting for more than 42% of total available space.