A new Kidder Mathews’ report indicates that San Mateo County office vacancy is on the rise and leasing rates are declining, as economic uncertainty and pandemic-driven labor changes are slowing activity. In the 2nd quarter, Peninsula office vacancy rose to 12.4%, a 30 basis point annual increase while direct asking lease rates dropped to $5.92 per square foot, down from $6.12 in Q1.

The Life Science market is driving office sales, which remain strong. Many investors are converting office space into lab space, which will reduce office inventory. The development pipeline is also robust with over 1.5 million square feet of office space under construction in San Mateo County.

Kidder’s report concludes that economic uncertainty may slow sales, despite an abundance of capital available and interested in the Peninsula office market. In addition, the hybrid work model, which is forcing employers to assess how much office space they need, will continue for the foreseeable future.