Artificial intelligence has been a big boon for San Francisco real estate. But not enough of one to make up for the broader struggle across the market.
The vacancy rate for San Francisco office space reached a fresh record of 34.5% in the second quarter, according to a report Monday from commercial real estate firm Cushman & Wakefield. That’s up from 33.9% in the first quarter, 28.1% in the same period a year ago and 5% before the pandemic.
Meanwhile, the average asking rent dropped to $68.27 per square foot in the quarter, the lowest since late 2015, down from $72.90 a year earlier and a peak of $84.70 in 2020.
San Francisco is reeling from the twin challenges of bringing people back to the office after the Covid pandemic and a slowdown in the tech market that’s led to mass job cuts across the industry. Tech companies have laid off more than 530,000 employees since the start of 2022, according to the website Layoffs.fyi, with major downsizing at Alphabet, Meta, Amazon, Tesla, Microsoft and Salesforce.
Softening the blow of late has been the soaring popularity of generative AI and the decision by fast-growing startups to open large offices in San Francisco.
OpenAI, the market leader with a private valuation that’s topped $80 billion, announced in October that it was leasing about 500,000 square feet of space in the Mission Bay neighborhood, the biggest office lease in the city since 2018. Robert Sammons, senior research director at Cushman & Wakefield, said OpenAI is continuing to look for more space in the city.
Also last year, OpenAI rival Anthropic subleased 230,000 square feet at Slack’s headquarters. And in May of this year, Scale AI signed a lease for a reported 170,000 to 180,000 square feet of space in Airbnb’s office building.
“San Francisco is certainly the center of AI, but AI is not going to save the San Francisco commercial real estate market,” Sammons said. “It will help.”
While richly capitalized AI startups are signing large leases for new space, the bigger trend is that tech companies, law offices and consulting firms are looking to reduce their footprint when existing leases come up, Sammons said, reflecting the widespread move to hybrid work.
In many cases, companies are looking to relocate to higher quality space in more desirable parts of the city, because prices have come down and employers need to be near restaurants and shops to get staffers to come back, Sammons added.
“The best quality trophy space continues to perform well, because tenants want to be in the best locations with the best amenities around them,” Sammons said.
Some of the city’s top employers, including Salesforce, Uber, Visa and Wells Fargo, have brought employees back to offices for part of the week. That’s helped in the financial district, where the vacancy rate is still 34.2% on the north side and 32.7% on the south side at the end of the quarter. In SoMa, which historically was a popular area for venture-backed startups, the vacancy rate is almost 50%.
SoMa is further away from mass transit options and has also been hurt by large retail departures. Vacant office space across San Francisco for the quarter totaled 29.6 million square feet, Cushman & Wakefield said.
The firm said in its report that there are positive signs in the market, with absorption poised to improve in the second half and office job numbers stabilizing following a steep drop-off. But Sammons said it looks like there’s more room for rents to fall and for vacancies to rise. Uncertainty surrounding the upcoming presidential election may be a factor delaying new leases, he said.
“Sometimes tenants postpone making decisions when there are major elections,” he said.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
MONTREAL – The Quebec Professional Association of Real Estate Brokers says Montreal-area home sales rose 9.3 per cent in August compared with the same month last year, with levels slightly higher than the historical average for this time of year.
The association says home sales in the region totalled 2,991 for the month, up from 2,737 in August 2023.
The median price for all housing types was up year-over-year, led by a six per cent increase for the price of a plex at $763,000 last month.
The median price for a single-family home rose 5.2 per cent to $590,000 and the median price for a condominium rose 4.4 per cent to $407,100.
QPAREB market analysis director Charles Brant says the strength of the Montreal resale market contrasts with declines in many other Canadian cities struggling with higher levels of household debt, lower savings and diminishing purchasing power.
Active listings for August jumped 18 per cent compared with a year earlier to 17,200, while new listings rose 1.7 per cent to 4,840.
This report by The Canadian Press was first published Sept. 6, 2024.
