Office vacancy rates are at their highest point in 45 years. Commercial real estate insiders predict a quarter of existing American office space could be vacant by early 2026. And currently, 11 major metro areas have at least $1 billion worth of empty space.
In San Francisco, 29 million square feet of office space sits vacant as of mid-2024, a value of $2.01 billion.
Bay Area-wide, a total of 94.9 million square feet of office space was vacant as of mid-year, with an expected lost rent value of $5.35 billion.
That’s according to a new report by insights firm Switch On Business, which compared second-quarter occupancy data against market rates provided by commercial real estate giant Cushman & Wakefield Inc.
In San Francisco, commercial property values have tanked in the last five years, though experts predict the worst is behind us. Real estate software company VTS has charted a 25% year-over-year increase in their Office Demand Index in San Francisco, largely due to increased demand in the tech sector with giants like Amazon and Salesforce making moves to bring their employees back to the office. The index tracks new tenant tour requirements of office properties as an indicator of upcoming leasing activity.
Despite a number of big leases this year in San Francisco — including OpenAI‘s lease of all 315,000 square feet at 550 Terry A. Francois Blvd. in Mission Bay and Scale AI’s 180,000-square-foot sublease at 650 Townsend St. — the city’s office vacancies remain at record levels. But observers remain optimistic, with some betting on a recovery as soon as 2026.
A bite out of the Big Apple
While plenty of Fortune 500 companies have called workers back to the office full time, at least 28.6 million workers — approximately 20% — are working hybrid or remote schedules.
New York has felt that shift more strongly than any other metro in the country. Earlier this year, 105.8 million square feet of office space was sitting empty in the city — an estimated rent loss of $7.61 billion per year.
While New York has seen similar declines in the past, some see the current trends as part of a long-term, broader cultural shift. Much like office-vacancy peaks in the 1970s and 1980s, overbuilding may also be to blame.
“What happens to New York City from here on out depends on the actions we take and the policy decisions that are made,” said Stijn Van Nieuwerburgh, the Columbia Business School professor who coined the term “urban doom loop,” in a statement that accompanied the report.
“In a best-case scenario, we remove 30% or 40% of the office stock in New York City and turn it into wonderful housing,” he said. “New York City has all these great amenities, it’s a wonderful place where young people want to live, regardless of where they work.”
Of course, those office-to-residential conversions have proven to be easier said than done — in New York and elsewhere.
Similar scenarios are playing out on the West Coast. Three California metros made the top five for lost rent revenue — Los Angeles ($2.10 billion), San Francisco ($2.02 billion) and San Jose ($2 billion).
Chicago ranked third, with an estimated rent loss of $2.05 billion from 58.1 million square footage of vacant space.
Southern cities suffer from overbuilding
While space may be more expensive on the coasts, when looking at sheer volume of unused office space, Texas metros are among the top markets.
Behind New York (105.8 million square feet) and Chicago (58.1 million square feet) is Dallas-Fort Worth, with 52.8 million square feet of vacant office space worth $1.62 billion. Houston is not far behind, with an empty 50 million square feet valued at $1.56 billion.
“To me, this evolution in office is more about metros and neighborhoods — where buildings, regardless of class, are either going to do quite well over the next few years or they’re going to become obsolete,” said Thomas LaSalvia, head of commercial real estate at Moody’s Analytics. “It really turns out that the old saying ‘location, location, location’ is still incredibly valuable, and maybe more than ever in this asset class.”
