MARKET DRIVERS
San Francisco’s office market continues to show sign of meaningful progress towards recovery fueled primarily by AI and technology firms while supported by renewed interest from traditional office users previously priced out of the city. Annual leasing activity hit its highest total since the pre-pandemic peak at just over 9.8M SF, signaling growing confidence among occupiers and a shift in market sentiment.
However, vacancy remains elevated at 30.1%, down 100 bps since last quarter, marking the eighth straight quarter above 30%. The decline in vacancy coupled with increased leasing activity and tenant demand suggests we are in the early signs of stabilization. While high vacancy levels are likely to persist in the near term, the surge in leasing during 2025 points to a potential inflection point.
Net absorption totaled positive 493,428 SF for the quarter, its first positive quarter since 4Q 2019. This activity brought the 2025 year-end total to -52,481 SF, its strongest annual figure since 2019 and the second straight year with a positive net absorption trend (from -7.2M SF in 2023 to -661,651 in 2024). The Financial District, Showplace Square and Mission/Potrero submarkets led activity for the year, all above 150K SF in positive net absorption for 2025. Tenant demand continues to be shaped by a mix of large transactions and mid-sized deals, though smaller leases dominate the landscape. Roughly 2% of deals exceeded 50,000 SF for the year, while 65% were under 5,000 SF, reinforcing the trend toward smaller footprints, shorter lease terms, and prolonged decision-making cycles. Many occupiers remain focused on optimizing space amid ongoing economic uncertainty.
The “flight to quality” persists but has evolved. While some tenants prioritize premium Class A buildings and view-oriented suites, where sub-5,000 SF options are scarce. Others seek efficient layouts, creative buildouts, and flexibility at competitive price points. Across the board, tenants are more selective, navigating a market rich with choices.
Sublease availability, a major driver of vacancy in recent years, fell 30% year-over-year to 5.4M SF, marking the third consecutive quarter below 7M SF and the lowest level since early 2020. Sublease space now represents 16% of total availability, down sharply from the 40%+ peak in 2020 but still above the pre-pandemic norm of 14–15%. This decline reflects active leasing, tenants reclaiming space for return-to-office strategies, and conversions of sublease inventory to direct listings.
ECONOMIC REVIEW
San Francisco’s economy is cautiously heading into 2026, though challenges remain. Unemployment sits at 3.9%, slightly lower the national average. Downtown foot traffic and transit ridership are improving, yet office attendance lags, impacting local businesses. Tourism is rebounding, but international visitor spending remains subdued. The tech sector is regaining momentum, driven by surging demand for AI talent and infrastructure. San Francisco remains a global hub for innovation, even as companies balance expansion with caution amid economic uncertainty.
NEAR-TERM OUTLOOK
With 30.8M SF of vacant space and nearly 33.5M SF available, headwinds persist. However, recent leasing strength suggests the market may have bottomed out earlier this year. Many analysts expect a gradual return to positive net absorption and incremental vacancy declines through 2026, supported by strong tenant activity, limited new construction, and rising demand.
Workplace trends continue to evolve. Hybrid models dominate, with most employees commuting Tuesday through Thursday, driving a noticeable uptick in downtown activity and fostering a cultural shift toward in-person collaboration. While pre-pandemic norms remain distant, employers are actively balancing flexibility with operational efficiency.
Policy changes under the new city administration are poised to bolster economic conditions and reshape the commercial real estate landscape, laying the foundation for sustained recovery and future growth.
4Q 2025 San Francisco Office Market: Key Data Points
Explore our full San Francisco office market review for deeper insights into leasing trends, sale activity, and submarket performance.
- Vacancy Rate Declines: Overall vacancy decreased to 30.1%, down 100 bps from last quarter.
- Average Asking Rents Rise: Asking rents averaged $47.99 per SF, a 1.9% increase year-over-year.
- Positive Net Absorption: Market posted 493K SF of net absorption, its first positive quarter since 4Q 2019.
- Leasing Activity Surges: Quarterly leasing totaled 2.4M SF, contributing to 9.8M SF for the year—the highest since pre-pandemic levels.
- Construction Pipeline Flat: Only 52,481 SF remains under construction, with no new deliveries this quarter.
- Sublease Space Shrinks: Sublease availability fell 30% year-over-year to 5.4M SF, the lowest since early 2020.
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