For every one step forward, the market takes two steps back
At the end of the third quarter 2022, the San Francisco office market continued to be impacted by the pandemic and subsequent drop in office use. The city closed the third quarter with record high office vacancy after posting significant negative net absorption, following a general trend in tenant rightsizings and downsizings -- citywide -- but particularly in the North and South Financial Districts. As of mid-September, office use data compiled by Kastle Systems showed significant growth in return-to-office figures across major U.S. markets, although the San Francisco metro tracked the lowest rate of growth and remained well below capacity. Until a significant, sustained return-to-office trend emerges in San Francisco, it is expected that vacancy will continue to remain near historic highs. Despite record high vacancy, citywide average asking rents remained relatively flat over the quarter. That said, effective rents ticked down slightly, with the class C segment seeing the most significant drop, reflecting trends in increasing tenant concessions and flight to quality.