SAN JOSE — In a wave of fresh evidence that tech cutbacks continue to haunt the Bay Area, office vacancies in the region have ballooned to an all-time high — and could grow worse in 2024.

The office-availability rate soared to record levels at the end of 2023 in San Francisco’s urban core, Silicon Valley and downtown Oakland, according to Savills, a commercial real estate firm. A report prepared by the company’s regional research director Erin Proto says the sluggish state of the Bay Area’s tech industry is a driving force behind the sky-high availability levels. Remote work is a significant factor, and the huge amount of empty and available office space in San Francisco is driven in no small part by a perceived “doom loop” of crime, homelessness and economic woes in the city.

Downtown San Francisco’s office-availability level — which includes empty office space offered for a direct lease from a property owner or sublease from a tenant — at year’s end reached an all-time high of 36.7%, meaning more than one-third of office space in the city was empty, said the report released Tuesday.

“With return-to-office rates amongst the lowest nationally and occupier concerns about declining quality of life and safety, expect leasing activity (in San Francisco) to remain lower over the short-term, especially as the technology sector continues to right-size after years of venture capital-fueled growth,” the report said.

Office availability in Silicon Valley — which the report defines as Santa Clara County, Fremont and Menlo Park — at the end of 2023 was slightly lower but still hit a record high of 27.5%.

Downtown Oakland’s office market, as of the end of December 2023, had a total availability rate of 21.3%, meaning about one-fifth of the office space in the East Bay city’s urban core was empty, Savills reported.

Moffett Green tech campus, located on Crossman Avenue in Sunnyvale.(Jeff Peters - Vantage Point Photography)
Moffett Green tech campus, located on Crossman Avenue in Sunnyvale. (Jeff Peters/Vantage Point Photography)

In Silicon Valley, the office availability rate rocketed higher despite several large office space deals, including a massive sublease deal totaling 719,000 square feet that Walmart signed in Sunnyvale during the fall. Walmart has agreed to fully occupy a four-building Sunnyvale tech campus that Facebook owner Meta Platforms had leased but never occupied.

Sutter Health, in another big office deal, leased 324,000 square feet that will enable the health care titan to occupy three buildings in Santa Clara.

But the office market could get even worse as 2024 unfolds, the Savills report warned.

“Office availability (in Silicon Valley) remains at an all-time high and is expected to increase even further as return to office rates have lagged the rest of the country,” the report said.

Downtown San Jose’s office market is in a particularly tough state, with an office availability rate of 35.7%, according to Savills. Nearby Santa Clara is struggling badly with an office availability level of 30.5%.

“Many large technology companies have realized they now have too much space,” Savills stated.

Consequently, rental rates have weakened in Silicon Valley for office buildings. Asking rental rates for offices were $5.10 a square foot per month at the end of December, down from $5.16 at the end of September.

And despite the emergence of artificial intelligence as a dynamic new industry, A.I. firms aren’t leasing space in nearly large enough amounts in the Bay Area to offset the wide-ranging office vacancies in the region.

“Expect office leasing activity to remain lower (in Silicon Valley) as long as the technology sector, which is the primary driver of space demand locally, remains in a correction,” Savills said.

Local real estate experts agree ailments could afflict the region’s office market for some time.

“Everything points to an extended period to recover from this existential vacancy problem,” said Mark Ritchie, president of Ritchie Commercial, a real estate firm. “This is not due to overbuilding of office space or an economic collapse. This is due to a fundamental change in the way people work.”

Even if people work in the office three days a week, that points to a huge shift in office space requirements.

“This is a catastrophe right now,” Ritchie said bluntly.

Still, despite the challenges and current gloomy economic landscape, Silicon Valley remains poised to ride a new wave of prosperity as advanced technologies such as artificial intelligence and green energy systems become more prevalent — and become job creators, in the view of Russell Hancock, president of Joint Venture Silicon Valley, a San Jose-based think tank.

“Silicon Valley is an innovation economy,” Hancock said. “Silicon Valley goes through these boom-bust cycles. This is not going to be a protracted downtown. Silicon Valley will recover and may even become a stratospheric economy in the next boom.”