A
new study by The Kaplan Group reveals that offices in San Francisco's Financial District are at the highest risk of default nationwide, due to a combination of high vacancy rates, long days on market, and high rents. This financial burden on property owners is a significant concern, according to the report.

    The study focused on 18 US cities' financial districts, using key economic indicators such as vacancy rates, rental costs, and office space availability to calculate risk. The data shows that San Francisco's Financial District has the highest risk of default, followed by Seattle and Houston, while Miami had the lowest risk due to its low vacancy rate and quick turnaround time on empty offices.

    The study found that nearly all financial districts have a harder time filling vacant offices than the country at large, with a median days on market (DOM) of 599 compared to the national median of 334. This trend may indicate that central city areas are losing their attractiveness, suggesting that converting vacant offices into residential spaces or coworking environments could help mitigate default risk and promote long-term economic sustainability.

    Among big cities, only Miami, Jacksonville, and Philadelphia had DOMs below the national average. San Francisco's high vacancy rate and rents were offset by relatively low days on market, while Los Angeles and Chicago had higher median DOM despite lower prices. The report suggests that lowering prices may not necessarily reduce DOM, and offices may need to adopt new strategies to avoid remaining vacant.

    The study also found that offices with the largest square footage are the hardest to rent out, which is consistent with San Francisco office market experts' observations that tenants tend towards smaller spaces. However, tech companies continue to drive demand for office space outside of the Financial District, as seen in recent moves by X and OpenAI.