MARKET DRIVERS
The San Francisco office market continued to make solid strides in its recovery cycle, driven by AI and technology firms, complemented by a resurgence of traditional office users who were previously priced out of the San Francisco market. Leasing activity is on track to reach its highest annual total since the pre-pandemic peak, signaling renewed momentum and increasing confidence among occupiers in the region.
While the overall vacancy rate remained elevated at 31.1%, marking the eighth consecutive quarter above 30%. This was a decrease from 31.6% last quarter and a decline from 31.9% last year. Although elevated vacancy levels are expected to persist in the near term, the recent uptick in leasing activity during the first three quarters of 2025 signals a potential shift.
Overall leasing in 2025 has been quite strong, averaging 2.5M SF per quarter with a year-to-date total of 7.5M SF. While 3Q activity was a bit below the previous two quarters, this increase represents the strongest performance since 2019 and is more than 46% higher than the first three quarters of last year. Unlike the previous two quarters with high levels of leasing and negative net absorption, 3Q 2025 experienced positive net absorption with 60,796 SF bringing the year-to-date figure to -553,341 SF. Activity levels during the quarter were highest in the Financial District and Mission/Potrero and from the Class A product.
Tenant activity was driven by a few large transactions and several mid-sized deals, though smaller leases continue to dominate the landscape. Approximately 2% of the year-to-date transactions were over 50,000 SF while 63% were under 5,000 square feet, underscoring a sustained trend toward smaller footprints, shorter lease terms, and extended decisionmaking timelines. Many tenants remain focused on rightsizing their space in response to ongoing economic uncertainty.
The “flight to quality” remains a defining theme, though its interpretation has evolved. While some tenants continue to prioritize Class A buildings and premium view spaces in core submarkets—where sub-5,000 square foot view suites are in extremely limited supply—others are seeking efficient layouts, creative buildouts, or greater flexibility and value. Across the board, tenants are demonstrating increased discernment in their search criteria, navigating a market with abundant options.
Sublease availability, a key contributor to elevated vacancy in recent years, declined 25% year-over-year to 6.0 million square feet. This marks the third consecutive quarter below 7 million square feet and the lowest level since early 2020. Sublease space now accounts for approximately 17% of total availability—down significantly from the 40%+ peak in 2020, though still above the pre-COVID average of 14–15%. This reduction is attributable to new leasing activity, tenants reclaiming space to support return-to-office strategies, and sublease inventory being converted to direct listings.
ECONOMIC REVIEW
San Francisco’s economy in late 2025 shows signs of cautious recovery amid persistent challenges. Unemployment hovers around 4.6%, slightly above the national average. Downtown foot traffic and transit ridership are rebounding, yet office attendance remains low, impacting local businesses. Tourism is improving, though international visitor spending is down. San Francisco’s tech sector is rebounding in 2025, driven by surging demand for AI talent and infrastructure.
The Bay Area added over 75,000 tech jobs recently, with AI-related roles growing 24% year-over-year. Companies are shifting from mass hiring to strategic recruitment and venture capital continues to flow heavily into AI startups, fueling office space expansion and long-term growth plans. San Francisco remains a top destination for innovation, though companies are balancing growth with caution amid economic uncertainty.
NEAR-TERM OUTLOOK
With approximately 32M SF of vacant office space and nearly
36M SF currently available, San Francisco’s office market continues to face significant headwinds. However, recent leasing momentum suggests the market may have reached bottom earlier this year. Driven by strong tenant activity, limited new development, and rising demand, the outlook is increasingly optimistic. Analysts anticipate a shift toward positive net absorption and a gradual decline in vacancy rates as we move into 2026.
Workforce dynamics are also evolving. Hybrid work models now account for over 60% of employment arrangements, with most employees commuting Tuesday through Thursday. This new rhythm has led to a noticeable uptick in downtown foot traffic and a cultural shift back toward in-person collaboration. While pre-pandemic activity levels remain distant, employers are actively balancing flexibility with operational efficiency.
Additionally, recent policy changes under the new city administration are expected to positively influence both economic conditions and the commercial real estate landscape, laying the groundwork for sustained recovery and future growth.
3Q 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 Begins to Decline: Overall vacancy dropped to 31.1%, down 80 bps year-over-year.
- Leasing Activity Surges: YTD leasing volume reached 7.5M SF, a 46.3% increase compared to the same period last year.
- Net Absorption Turns Positive: Q3 posted 61K SF of positive net absorption, reversing prior quarterly losses.
- Asking Rents Edge Up: Average asking rent rose 1.7% YOY to $47.95 PSF Full Service Gross.
- Sublease Inventory Shrinks: Sublease availability declined 25% YOY to 6M SF, the lowest level since early 2020.
- Sales Volume Nearly Doubles: YTD office sales totaled 3.96M SF, up 79.5% year-over-year.
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