Peninsula/San Mateo Office Market Report

The following reflects Peninsula office market conditions as of Q2 2026.

MARKET DRIVERS

Leasing activity reached 1.2M SF during the first half of the year, approximately 20% ahead of the same period last year and placing the market on pace for its strongest annual leasing volume since 2019. Net absorption also remained positive with more than 472,947 SF, year-to-date, 13% above last year’s pace and signaling a meaningful improvement in occupancy trends. Together, these indicators suggest that tenant demand is strengthening as tenants shift their focus from space consolidation toward longer-term workplace planning and growth.

Artificial intelligence firms have been a leading driver of office demand across the Bay Area and the Peninsula, generating leasing activity in innovation-focused markets such as San Mateo, Redwood City, and Menlo Park. This demand is being supplemented by steady requirements from life sciences, medical technology, fintech, and professional services users, creating a broader and more balanced occupier base than in recent years.

Tenant preferences have evolved considerably. Rather than pursuing broad portfolio expansion, occupiers are increasingly focused on securing space that directly supports talent attraction, collaboration, and operational efficiency. As a result, leasing activity is concentrated in premium Class A buildings that offer modern amenities, flexible floorplates, and a strong employee experience. Properties located near transit infrastructure, particularly along Caltrain-served corridors, continue to attract outsized interest as companies prioritize accessibility and commute convenience for their workforce.

Market conditions increasingly favor high-quality assets. Competitive advantages have become concentrated in newer buildings, while older properties face greater leasing challenges unless supported by meaningful repositioning efforts and capital investment. At the same time, signs of renewed tenant confidence are emerging through selective preleasing activity, indicating a willingness among occupiers to secure future space in desirable projects before delivery. With limited new office construction underway, the future supply of premium inventory remains constrained, elevating the importance of existing top-tier assets across the region’s most sought-after submarkets.

ECONOMIC OVERVIEW

The San Francisco Peninsula continues to benefit from its position at the center of the Bay Area innovation economy. Employment growth remains closely tied to technology, artificial intelligence, life sciences, and advanced business services, with emerging technology investment supporting business expansion plans across the region. Capital markets activity remains selective, although investor interest has strengthened for well-located institutional assets with durable tenant demand. Business sentiment has become more positive as occupiers move from short-term space optimization toward longer-range workplace strategies. The Peninsula’s access to both Silicon Valley and San Francisco talent pools continues to reinforce its role as a preferred location for growth-oriented companies.

NEAR TERM OUTLOOK

Over the near-term, market performance is expected to remain closely tied to the expansion trajectory of artificial intelligence and other innovation-driven industries. Continued venture capital investment and corporate hiring within technology-related sectors should provide support for leasing activity, particularly in premium transit-oriented locations. Demand is likely to remain concentrated in high-quality buildings, reinforcing the separation between top-performing assets and older competitive properties. Limited new development should help preserve the value of existing institutional-grade inventory, while declining portfolio consolidation activity may support a more stable occupancy environment. Economic uncertainty and cautious corporate decision-making remain potential headwinds, although current demand trends point toward gradual market improvement.

Frequently Asked Questions

What is the current office vacancy rate in the Peninsula market as of Q2 2026?

The direct vacancy rate in the Peninsula office market was 21.4% at the end of Q2 2026, according to Kidder Mathews research. Overall (total) vacancy stood higher at 23.8%. Vacancy varied widely by submarket, ranging from 5.3% in Daly City to 36.5% in Redwood City.

What is the average asking rent for Peninsula office space in Q2 2026?

The average direct asking rent across the Peninsula office market was $5.50 per square foot per month (FSG) in Q2 2026, unchanged from the prior quarter but down 6.7% from $5.90 a year earlier (Data source: CoStar). Submarket averages ranged from $3.12 PSF in Daly City to $7.05 PSF in Menlo Park.

How much office leasing activity has occurred in the Peninsula market in 2026?

Peninsula office leasing activity totaled 1,195,773 SF year-to-date through Q2 2026, roughly 20% ahead of the same period in 2025 and on pace for the market’s strongest annual leasing volume since 2019, according to Kidder Mathews research. Q2 2026 alone accounted for 408,471 SF of leasing activity.

What is net absorption and how has it trended in the Peninsula office market?

Net absorption measures the change in occupied office space over a period, and it remained positive in the Peninsula market with 472,947 SF absorbed year-to-date through Q2 2026, a 12.6% improvement over the same period in 2025. Q2 2026 alone posted 786,226 SF of positive net absorption, signaling strengthening occupancy trends across the market.

How much office space is under construction in the Peninsula in Q2 2026?

There were 712,462 SF of office space under construction across the Peninsula as of Q2 2026, up 41.2% year-over-year, according to Kidder Mathews research. No new construction deliveries occurred in Q2 2026. San Bruno/Millbrae accounted for 440,000 SF of the total, led by the YouTube HQ project at 1300 Bayhill Drive and 1350 Grundy Lane, expected to deliver in Q3 2026.

What was the largest office sale transaction in the Peninsula in Q2 2026?

The largest Peninsula office sale in Q2 2026 was 1400 Seaport Blvd in Redwood City, a 303,015-square-foot property that sold for $94,424,500 ($312 per square foot). Farallon Capital Management, LLC purchased the asset from Divco West Serv., LLC (Data source: CoStar).

What was the largest office lease transaction in the Peninsula in Q2 2026?

The largest Peninsula office lease signed in Q2 2026 was Replit’s 52,642-square-foot lease at 1051 E Hillsdale Blvd in Foster City, executed in June 2026 with sublessor Exabeam, according to Kidder Mathews research.

Which submarkets have the highest and lowest office vacancy rates in the Peninsula?

Redwood City had the highest direct vacancy rate among Peninsula submarkets at 36.5% in Q2 2026, followed closely by Belmont/San Carlos at 32.0% and Redwood Shores at 32.7%. Daly City had the lowest direct vacancy rate at just 5.3%, according to Kidder Mathews research.

What is driving office leasing demand in the Peninsula in 2026?

Artificial intelligence firms have been a leading driver of Peninsula office demand in 2026, generating leasing activity in innovation-focused markets such as San Mateo, Redwood City, and Menlo Park. This demand is supplemented by steady requirements from life sciences, medical technology, fintech, and professional services occupiers, according to Kidder Mathews research.

What is the outlook for the Peninsula office market heading into the second half of 2026?

The Peninsula office market outlook remains tied to continued expansion in artificial intelligence and other innovation-driven industries, with demand expected to stay concentrated in high-quality, transit-oriented buildings. Limited new development should help preserve the value of existing institutional-grade inventory, and declining portfolio consolidation activity may support a more stable occupancy environment, according to Kidder Mathews research.

Last updated: Q2 2026. Data source: CoStar, U.S. Bureau of Labor Statistics, KM Research. Compiled by the Kidder Mathews Research Group.

2Q 2026 Peninsula Office Market: Key Data Points

Explore our full Peninsula office market review for deeper insights into leasing trends, sale activity, and submarket performance.

• Leasing Activity Gains Momentum: Peninsula office leasing reached 1.2M SF year-to-date, up 19.4% compared to the same period last year and on pace for the market’s strongest annual leasing volume since 2019.
• Positive Net Absorption Continues: Net absorption totaled 472,947 SF year-to-date, a 12.6% increase year-over-year, reflecting improving tenant demand and occupancy trends.
• Direct Vacancy Holds Near 21%: The direct vacancy rate ended Q2 at 21.4%, remaining relatively stable quarter-over-quarter as leasing activity continues to offset available space.
• Asking Rents Remain Resilient: Average direct asking rents averaged $5.50 PSF per month, demonstrating stability despite elevated vacancy levels across the market.
• Limited New Supply Pipeline: No new office projects delivered during Q2, while only 712,462 SF remains under construction, helping constrain future supply growth.
• AI and Innovation Firms Drive Demand: Growth in AI, life sciences, medtech, fintech, and professional services leasing activity continues to support office demand across key Peninsula submarkets, including San Mateo, Redwood City, and Menlo Park.

Submarket Statistics

Significant Sale Transactions Q2 2026

Significant Lease Transactions Q2 2026

Significant Under Construction