MARKET DRIVERS
The San Francisco office market continues to show signs of improving fundamentals as leasing momentum builds alongside a growing investment in the city, despite persistently high vacancy rates. Leasing activity totaled more than 3.4M SF during 1Q 2026, led primarily by AI-focused and traditional technology firms, with incremental demand emerging from more conventional office users.
This marks the sixth consecutive quarter with more than 2.0M SF of leasing activity and the second time in the past 12 months that volume has surpassed 3.0M SF. Net absorption totaled just under 800K SF for the quarter, representing the strongest total since 2019 and the second consecutive quarter with more than 500,000 SF. These indicators illustrate a strengthening and expanding market after several years of sustained contraction.
During the quarter, approximately 3% of leases exceeded 50,000 SF by deal count, while roughly 55% were under 5,000 SF. This distribution highlights an ongoing shift toward smaller footprints, shorter lease commitments, and longer decision-making cycles, as occupiers balance near-term uncertainty with the need for future flexibility.
Several high-profile transactions point to confidence in San Francisco’s long-term value as an innovation center. OpenAI continues to expand its Mission Bay presence by leasing 222,000 SF at 1800 Owens, bringing its total footprint in the city to approximately 1.0M SF across multiple buildings, while simultaneously committing to a sizable campus in Mountain View. Similarly, Anthropic executed one of the city’s largest post-pandemic office leases in January, securing 420,000 SF at 300 Howard in addition to 102,000 SF at 400 Howard in March and 104,000 at 505 Howard late last year. These transactions represent meaningful, long-term commitments and have helped generate positive net absorption in select submarkets.
Despite two consecutive quarterly declines, vacancy rates are expected to remain elevated in the near term, as tenant demand and forward-facing momentum builds. Leasing demand has generally been concentrated in newer, well-located buildings that support collaboration, offer robust amenities, and provide flexibility for future growth, reinforcing a widening performance gap between high-quality assets (particularly those with views) and older, less flexible inventory.
Sublease availability also declined, dropping 15% year-over-year to 4.6M SF, marking its lowest level since early 2020. Sublease space now represents approximately 15% of total availability, a significant decrease from its peak above 40% and closely aligned with pre-pandemic norms. This improvement reflects a combination of active leasing, tenant space recapture associated with return-to-office strategies, and conversion of sublease inventory into direct lease offerings, illustrating the continuing shift towards positive market conditions.
ECONOMIC REVIEW
The broader U.S. economy continues to expand, though muted job creation has kept office leasing demand relatively measured. Across major markets, office tenants are making disciplined and strategic real estate decisions, prioritizing space efficiency, flexibility, and long-term adaptability over aggressive growth.
San Francisco’s economy is growing at a modest pace, with employment gains remaining uneven as firms hire selectively rather than at scale. Activity continues to be led by AI, advanced technology, life sciences, and professional services, supported by sustained venture capital investment and the city’s deep talent pool. At the same time, elevated office vacancy, high housing and operating costs, and cautious hiring amid broader economic uncertainty are tempering the pace of recovery, even as momentum builds within the city’s leading growth sectors.
NEAR-TERM OUTLOOK
With more than 29M SF of vacant space and nearly 32M SF of available space on the market, near-term headwinds persist. However, the recent rise in leasing momentum suggests the market may have bottomed out in late 2025 and is now entering an early recovery phase. Analysts project a return to positive net absorption through 2026 with modest vacancy compression, supported by improving tenant demand, limited new supply, and a more stable pipeline of active tenant requirements.
Workplace trends continue to evolve. Hybrid work remains the dominant model, with most employees commuting Tuesday through Thursday, contributing to a noticeable increase in downtown activity, including more retail and restaurant operators who want to participate in the resurgence. This shift is fostering a renewed emphasis on in‑person collaboration and cultural cohesion, even as pre-pandemic patterns remain distant. Employers are increasingly focused on balancing flexibility with operational efficiency, shaping demand for high-quality, well-located and amenity-rich office environments.
1Q 2026 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 Rates Decline Year-Over-Year: The overall vacancy rate fell to 28.0% in 1Q 2026, a 370-basis-point improvement compared to 1Q 2025, marking a second consecutive quarterly decline.
- Leasing Activity Surges: Leasing activity totaled 3.4M SFin 1Q 2026, up 43% year-over-year and representing the sixth straight quarter exceeding 2.0M SF.
- Net Absorption Turns Strongly Positive: Net absorption reached 855,000 SF during the quarter—the strongest performance since 2019—reflecting expanding tenant demand after several years of contraction.
- Asking Rents Edge Higher: Average asking rents increased to $48.70 per square foot (full-service gross), a 3.4% rise year-over-year, driven by demand for newer, amenity-rich office assets.
- Construction Remains Absent: With zero square feet under construction, limited new supply continues to support future vacancy compression as leasing momentum builds.
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