Peninsula/San Mateo Office Market Report

The following reflects Peninsula office market conditions as of Q3 2026.

MARKET DRIVERS

Leasing momentum continues to build across the market. After a strong third quarter with 1.4M SF of leasing activity, year-to-date total volume has reached 2.6M SF, roughly 34% ahead of last year and putting the market on track for its strongest leasing performance since 2019. Year-to-date net absorption has also topped 600,000 SF, signaling that occupancy conditions are stabilizing and gradually improving after several years of tenant downsizing and space reductions.

Demand continues to be largely driven by the growth of artificial intelligence companies, which have become increasingly active throughout the Peninsula and broader Bay Area. Markets such as San Mateo, Redwood City, and Menlo Park are benefiting from this expansion, while recent demand from life sciences, medical technology, fintech, and professional services firms is helping create a healthier and more diversified tenant base than we’ve seen in recent years.

At the same time, tenants are becoming more selective about the space they lease. Rather than taking more space for the sake of growth, companies are prioritizing offices that help attract employees, encourage collaboration, and improve workplace efficiency. As a result, demand remains heavily focused on well-located Class A properties with modern amenities, flexible layouts, and convenient access to transit. Buildings near Caltrain stations continue to stand out as employers place greater emphasis on commute accessibility and employee experience.

This flight to quality is creating a widening gap between top-tier assets and older buildings. Newer, Class A institutional-quality properties continue to capture the majority of leasing demand, while aging assets are often facing longer lease-up periods unless they receive meaningful upgrades. Encouragingly, some tenants are beginning to make longer-term real estate decisions, including selective preleasing activity, which reflects growing confidence in future business needs. With relatively little new office construction underway, the supply of premium space is expected to remain limited, supporting the long-term outlook for the market’s most desirable properties.

ECONOMIC REVIEW

The San Mateo County economy continues to benefit from its position within the Bay Area’s innovation economy. Employment conditions remain solid, with unemployment below 4%, while venture capital funding remains active, particularly among AI and life science companies.

Life sciences and biotechnology also continue to be key drivers of growth, especially in South San Francisco, where a well-established biotech cluster attracts investment, research activity, and highly skilled talent. Healthcare and medical technology firms are also expanding, helping diversify the employment base beyond traditional technology industries.

The economic outlook has improved as companies move beyond cost-cutting and focus more on growth, hiring, and long-term planning. Investment remains heavily concentrated in artificial intelligence and other innovation-led sectors, supporting new business formation and increased hiring activity. Together, these trends are helping strengthen business confidence and creating a more supportive environment for office demand across the Peninsula.

NEAR-TERM OUTLOOK

Looking ahead, market performance will likely remain closely tied to growth within AI and other innovation-driven industries. Continued hiring, venture capital investment, and business expansion across these sectors should provide an important source of leasing demand, particularly for high-quality buildings in transit-oriented locations.

The market is also expected to remain highly bifurcated. Premium Class A properties should continue to outperform, while older and less competitive buildings may face ongoing challenges as tenants remain selective. Limited new development will help prevent an oversupply of top-quality space and should support the value of existing institutional-grade assets.

While economic uncertainty and cautious corporate decision-making could slow the pace of recovery, the overall direction of the market appears increasingly positive. Leasing activity has strengthened, occupancy trends are improving, and many companies are shifting from short-term space reductions toward longer-term workplace planning. Taken together, these factors suggest the office market is gradually moving into a more stable and balanced phase of the recovery cycle.

Frequently Asked Questions

What is the Peninsula office vacancy rate in Q3 2026?

The Peninsula office direct vacancy rate was 21.6% at the end of Q3 2026, according to Kidder Mathews research. That is up from 21.4% in Q2 2026 and down 50 basis points from 22.1% in Q3 2025. The overall vacancy rate was 24.3%, compared with 23.8% in Q2 2026 and 27.5% a year earlier. (Data source: CoStar)

What is the office availability rate on the Peninsula in Q3 2026?

The Peninsula office total availability rate was 26.0% in Q3 2026, according to Kidder Mathews research. By building class, availability was 31.8% for Class A, 27.8% for Class B and 10.2% for Class C. Among submarkets, availability ranged from 8.1% in Daly City to 40.8% in both Brisbane and Redwood Shores. (Data source: CoStar)

How much office space was leased on the Peninsula in Q3 2026?

Peninsula office leasing activity totaled 1,391,654 SF in Q3 2026 and 2,587,427 SF year to date, according to Kidder Mathews research. Year-to-date volume is 34.0% above the 1,931,394 SF leased in the same period of 2025, putting the market on track for its strongest leasing performance since 2019. Redwood City led all submarkets with 993,329 SF leased in the quarter. (Data source: CoStar)

What was Peninsula office net absorption in Q3 2026?

Peninsula office net absorption was positive 133,213 SF in Q3 2026 and 606,160 SF year to date, according to Kidder Mathews research. Net absorption measures the change in occupied space, so a positive figure means tenants occupied more space than they vacated. Year-to-date absorption is 23.8% below the 795,285 SF recorded in the same period of 2025. Foster City (175,046 SF), Redwood City (108,845 SF) and South San Francisco (89,281 SF) posted the strongest quarterly absorption. (Data source: CoStar)

What are average office asking rents on the Peninsula in Q3 2026?

The average Peninsula office asking rent was $5.50 per SF per month on a full-service basis in Q3 2026, unchanged from Q2 2026 and down 7.6% from $5.96 in Q3 2025, according to Kidder Mathews research. Submarket averages ranged from $3.18 in Daly City to $7.10 in Menlo Park. By building class, Class A averaged $6.60, Class B $5.22 and Class C $4.02. (Data source: CoStar)

How much office space is under construction on the Peninsula in Q3 2026?

Approximately 478,812 SF of office space was under construction on the Peninsula in Q3 2026, down from 712,462 SF in Q2 2026 and up 4.7% from 457,415 SF in Q3 2025, according to Kidder Mathews research. The largest project is Alphabet’s 440,000 SF YouTube HQ in San Bruno, scheduled for delivery in Q4 2026. Parallels on Claremont in San Mateo adds 38,812 SF, with delivery set for Q1 2027. New deliveries totaled 181,000 SF in Q3 2026. (Data source: CoStar)

What was the largest office sale on the Peninsula in Q3 2026?

The largest Peninsula office sale reported in Q3 2026 was 1400 Veterans Blvd in Redwood City, where Invesco Advisers purchased 62,500 SF from Hunter Properties for $62,200,000 ($995/SF), according to Kidder Mathews research. The next largest was 550 Allerton St in Redwood City, where Shorenstein Properties paid Premia Capital $27,260,000 ($356/SF) for 76,649 SF. Sales volume totaled 884,075 SF in Q3 2026 and 2,600,394 SF year to date, up 97.2% from the same period of 2025. (Data source: CoStar)

What was the largest office lease on the Peninsula in Q3 2026?

The largest Peninsula office lease reported in Q3 2026 was a 242,935 SF renewal by Box at 900 Jefferson Ave in Redwood City, with a transaction date of August 2026, according to Kidder Mathews research. Sunday Robotics completed an 88,411 SF renewal and expansion at 305 Walnut St in Redwood City in July 2026. RingCentral renewed 84,148 SF at 20 Davis Dr in Belmont in July 2026. (Data source: CoStar)

What is driving office demand on the Peninsula in Q3 2026?

Growth among artificial intelligence companies is the largest driver of Peninsula office demand in Q3 2026, particularly in San Mateo, Redwood City and Menlo Park, according to Kidder Mathews research. Life sciences, medical technology, fintech and professional services firms are also adding demand and diversifying the tenant base. Tenants are focusing on well-located Class A buildings with modern amenities and transit access, including buildings near Caltrain stations.

What is the outlook for the Peninsula office market after Q3 2026?

Kidder Mathews research expects Peninsula office performance to stay closely tied to growth in AI and other innovation-driven industries. The market is expected to remain bifurcated, with premium Class A properties outperforming older, less competitive buildings. Limited new development should help prevent an oversupply of top-quality space. Stronger leasing activity and improving occupancy trends suggest the market is gradually moving into a more stable and balanced phase of the recovery cycle.

Last updated: Q3 2026. Data source: CoStar, U.S. Bureau of Labor Statistics, KM Research. Compiled by the Kidder Mathews Research Group.

Q3 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.

• Direct Vacancy: The direct vacancy rate ended Q3 2026 at 21.6%, up from 21.4% in Q2 2026 and down 50 bps from 22.1% a year earlier. The overall vacancy rate was 24.3%.
• Leasing Activity: Tenants leased 1,391,654 SF in Q3 2026 and 2,587,427 SF year to date, up 34.0% from the same period of 2025.
• Net Absorption: Net absorption was 133,213 SF in Q3 2026 and 606,160 SF year to date, compared with 795,285 SF in the same period of 2025 (-23.8%).
• Asking Rent: The average asking rent was $5.50 per SF per month full service, unchanged from Q2 2026 and down 7.6% from $5.96 in Q3 2025.
• Construction Pipeline: 478,812 SF was under construction, led by Alphabet’s 440,000 SF YouTube HQ in San Bruno (delivery Q4 2026). New deliveries totaled 181,000 SF in the quarter.
• Sales Activity: 884,075 SF sold in Q3 2026 and 2,600,394 SF year to date, up 97.2% from the same period of 2025. The largest sale was 1400 Veterans Blvd in Redwood City at $62,200,000 ($995/SF).
• Redwood City: The submarket led leasing with 993,329 SF in Q3 2026 and posted 108,845 SF of net absorption for the quarter.

Submarket Statistics

Significant Sale Transactions 3Q26

Significant Lease Transactions 3Q26

Significant Under Construction