Slack Aims To Ditch High-Rise Space in Latest Blow to San Francisco Office Demand

Even though San Francisco Omicron numbers continue to decline, San Fransisco’s High-Rise leasing continues to take a hit.

Here’s a recent article from CoStar that offers more insight -

Slack Aims To Ditch High-Rise Space in Latest Blow to San Francisco Office Demand

Instant Messaging Platform To Offload Workspace in Pursuit of Flexible Work Options

By Katie Burke
CoStar News

February 3, 2022 | 5:07 P.M.

Just as San Francisco's sublease glut appears to be easing, one of the city's largest tech companies is putting hundreds of thousands of square feet of offices on the market in the latest nod to companies shifting toward long-term remote work.

Instant messaging platform Slack has listed all 208,460 square feet of its office space in the high-rise at 45 Fremont St. more than three years after signing what had been the city's third-largest office deal of 2019. CBRE has been enlisted to help market the space, which according to marketing materials is "available now."

Slack, acquired by fellow San Francisco tech company Salesforce last year, was one of the first companies to shift to remote work after the pandemic's outbreak in early 2020. It has repeatedly delayed its return to physical office space, and while it is tentatively set to bring workers back sometime this month, a majority of its global workforce will be "digital first."

A spokesperson for the company confirmed the sublease decision and told CoStar News that while Slack would retain its Foundry Square headquarters at nearby 500 Howard St., the company's shift to more flexible working models will be a permanent aspect of its real estate strategy moving forward.

Slack leases the full 247,238 square feet of office space at the Howard Street complex as part of a deal that won't expire until August 2028, according to CoStar data.

'Doomed Approach'

Emerging COVID-19 variants, delayed return-to-office plans and an employee-driven push for flexible schedules have all spiraled into a tangle of woes for the San Francisco office market, which prior to the pandemic boasted the nation's most expensive rents and a severe shortage of high-quality space. Over the past two years, however, a growing pool of locally based companies, including Airbnb, Salesforce, Uber, Dropbox, Cloudflare and Eventbrite, have downsized or abandoned physical office space altogether as they adopt hybrid or fully remote work structures.

Slack CEO Stewart Butterfield said last year that it was fruitless to require workers to return to in-person office space, and that the pandemic has created a new course for companies that will forever change how and where employees work.

“When I see headlines about CEOs trying to lure employees back to the office, I feel like it’s probably a doomed approach,” Butterfield said. “Work is no longer a place you go. It’s something you do.”

The mounting preference for remote work has dealt a series of blows to the nation's top-tier office markets, and the impact is seen delaying a full recovery for several of them. San Francisco has suffered the most severe office occupancy losses among the nation's largest cities since the start of the pandemic, according to a CoStar analysis. More than 10 million square feet of office space has been vacated, a figure on par with the amount of space tenants emptied in San Francisco during the dot-com bust of 2000.

On the sublease front, San Francisco has fared far worse than other major office markets across the country.

With more than 8 million square feet of office space sitting on the city's sublease market, San Francisco has seen a slight drop from its high of about 10 million square feet a year ago, but more than double the 3.7 million square feet from the end of 2019.

Marco Cugia, an associate director of CoStar market analytics, said some of the older sublease listings have been marketed for so long, the original lease term has expired and the space is now available directly from landlords. That is evidenced by a rise in total space availability in San Francisco, for both direct and sublet listings, to more than 28 million square feet.

"Heightened sublet availability is a negative sign for office demand as existing tenants are cutting out of leases early, but it also puts downward pressure on overall market rents because it's a discount compared to direct vacant space," Cugia said.

As a result, San Francisco has been overtaken by Silicon Valley as the country's most expensive office market. Annual asking rates in San Francisco have fallen about 5% over the past year to roughly $61 per square foot, according to CoStar data. In San Jose, which encompasses the tech-concentrated Silicon Valley area, asking rents average roughly $62 per square foot.

By comparison, rents among sublet availabilities in San Francisco average only $42 per square foot.