San Francisco Office Market Report

The following reflects San Francisco office market conditions as of 2Q 2026.

MARKET DRIVERS

Artificial intelligence remains the primary driver of office demand and the dominant force shaping leasing activity across San Francisco. Leasing momentum accelerated through the first half of 2026, reaching levels not seen since the city’s last major expansion cycle. By the end of 2Q, San Francisco recorded its seventh consecutive quarter with more than 2.0M SF of leasing activity, including 3.6M SF in 2Q alone. Net absorption reached 830K SF for the quarter, bringing the year-to-date total to 1.7M SF. Both metrics are on pace for their strongest annual performance since 2018, signaling a market that has officially moved beyond stabilization and into the early stages of recovery.

The total vacancy rate declined to 27.2% at quarter-end, down substantially from its recent peak of 32% in 2024, while overall availability continued to also trend lower. Sublease inventory has also tightened significantly and now represents just 14.3% of the total available space, down from a record high of 44% in 2020. The decline reflects a combination of strong leasing activity, increased space utilization, and expiring subleases reverting to direct availability.

Demand remains concentrated in high-quality buildings offering modern layouts, enhanced amenities, and future growth flexibility. While leasing activity has broadened across asset classes, Trophy and Class A properties continue to capture a disproportionate share of demand. Through mid-year, Class A assets accounted for 55% of leasing activity and 66% of total net absorption, while older and less adaptable buildings continue to lag.

Large commitments from leading AI companies have reinforced confidence in San Francisco’s premier office corridors and innovation-focused submarkets. At the same time, the broader tenant base remains focused on flexibility, efficiency, and measured growth. While several large transactions have driven a significant portion of leasing volume, most occupiers continue to pursue smaller space requirements.

Over the past six months, approximately 3% of all lease transactions in San Francisco exceeded 50,000 SF, while 60% were for spaces under 5,000 SF. This distribution reflects an ongoing preference for smaller footprints, greater flexibility, and longer decision-making timelines as companies balance growth opportunities with economic uncertainty.

ECONOMIC REVIEW

San Francisco’s office market continues to gain momentum as technology companies, particularly within the AI sector, continue to expand and attract significant investment. Strong venture capital activity is also supporting business formation, hiring, and office demand across the city. Investor sentiment has also improved, with institutional capital becoming increasingly active as fundamentals stabilize and pricing adjusts to more attractive levels.

While leasing and investment activity point to a healthier market, office attendance remains uneven due to continued hybrid and remote workplace models. As a result, the current recovery is being driven more by improving market fundamentals than by a broad-based increase in daily office utilization.

NEAR-TERM OUTLOOK

The office market is expected to continue its recovery through the remainder of 2026. Expansion within the AI ecosystem and adjacent industries should remain the primary catalyst for leasing activity, particularly in high-quality buildings near established technology hubs. Continued venture capital investment and an active tenant pipeline suggest demand will remain healthy, while subdued interest in older inventory may widen performance gaps across asset classes.

Key risks include the pace of technology hiring, broader economic conditions, and the continued evolution of office utilization patterns. Even so, current market momentum points to further improvement in occupancy, leasing activity, and investor interest as the year progresses.

Frequently Asked Questions

What is the office vacancy rate in San Francisco in 2Q 2026?

San Francisco’s total office vacancy rate was 27.2% at the end of 2Q 2026, down 440 basis points year-over-year from 31.6% in 2Q 2025, according to Kidder Mathews research. Direct vacancy stood at 24.7%, also down from 27.1% a year earlier. Vacancy has declined steadily from its recent peak of roughly 32% in 2024.

How much office space is available for lease in San Francisco right now?

Total office availability in San Francisco was 29.1% as of 2Q 2026 (Data source: CoStar). Sublease space made up just 14.3% of total available space, down sharply from a record high of 44% in 2020, reflecting tightening sublease inventory as companies absorb space and expiring subleases revert to direct availability.

What are average office asking rents in San Francisco in 2Q 2026?

The average Financial District Class A and B direct asking rent was $49.10 per SF full service gross in 2Q 2026, up 4.2% from $47.11 a year earlier, according to Kidder Mathews research. Across submarkets, direct rental rates ranged from $30.85 per SF in Civic Center to $79.29 per SF in Waterfront/North Beach.

How much office leasing activity took place in San Francisco in 2Q 2026?

San Francisco recorded 3,572,405 SF of office leasing activity in 2Q 2026, bringing the year-to-date total to 6,989,463 SF, a 23.0% increase over the 5,680,716 SF leased through the same period in 2025 (Data source: CoStar). The quarter marked San Francisco’s seventh consecutive quarter with more than 2.0M SF of leasing activity.

What was net absorption for San Francisco office space in 2Q 2026?

San Francisco office net absorption was positive 829,597 SF in 2Q 2026, according to Kidder Mathews research. Net absorption measures the change in occupied space — a positive figure means tenants moved into more space than they vacated. Year-to-date net absorption reached 1,684,451 SF, a sharp turnaround from negative 614,137 SF recorded over the same period in 2025.

Is there any new office construction underway in San Francisco?

San Francisco had 381,750 SF of office space under construction as of 2Q 2026, entirely within the Mission Bay/China Basin submarket, according to Kidder Mathews research. There were no new deliveries during the quarter, consistent with the limited new office construction across the market since 2020.

What was the largest office sale in San Francisco in 2Q 2026?

The largest office sale in San Francisco in 2Q 2026 was 1 De Haro in the Showplace Square submarket, a 126,537 SF building sold by SKS Partners to Strada Investment Group for $103,000,000, or $814 per SF, according to Kidder Mathews research. Total office sale volume for the quarter reached 1,377,134 SF.

What was the largest office lease signed in San Francisco in 2Q 2026?

The largest office lease signed in San Francisco in 2Q 2026 was the City and County of San Francisco’s 505,000 SF lease at 1455 Market Street in the Mid Market submarket with landlord Hudson Pacific Properties, signed in May 2026, according to Kidder Mathews research. Several other large AI-sector leases were signed during the quarter, including together.ai’s 149,000 SF lease at 2 Henry Adams Street.

Which San Francisco office submarkets have the lowest vacancy?

Mission Bay/China Basin had the lowest total vacancy rate among San Francisco office submarkets in 2Q 2026 at 10.4%, followed by Van Ness Corridor/Chinatown at 11.4% and Mission/Potrero at 12.1%, according to Kidder Mathews research. Yerba Buena had the highest total vacancy rate at 56.4%.

What is the outlook for the San Francisco office market?

The San Francisco office market is expected to continue its recovery through the remainder of 2026, with continued expansion in the AI ecosystem and adjacent industries serving as the primary catalyst for leasing activity, according to Kidder Mathews research. Key risks include the pace of technology hiring, broader economic conditions, and the continued evolution of office utilization patterns, though current momentum points to further improvement in occupancy, leasing, and investor interest.

Last updated: 2Q 2026. Data source: CoStar, Kidder Mathews, Bureau of Labor Statistics, California EDD. Compiled by the Kidder Mathews Research Group.

2Q 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 Continue to Decline: San Francisco’s overall office vacancy rate fell to 27.2% in Q2 2026, down 440 basis points year-over-year, while direct vacancy declined to 24.7%.
• Leasing Activity Accelerates: Office leasing totaled 7.0M SF year-to-date, a 23.0% increase from the same period last year and the strongest pace since the market’s previous expansion cycle.
• Net Absorption Turns Positive: Net absorption reached 1.7M SF year-to-date, a significant improvement from the negative 614K SF recorded during the first half of 2025.
• AI Companies Drive Office Demand: Artificial intelligence firms remain the leading source of office demand, helping fuel seven consecutive quarters with more than 2.0M SF of leasing activity.
• Office Rents Move Higher: Average Financial District Class A and B asking rents increased to $49.10 PSF full service, up 4.2% year-over-year as demand concentrates in premium office buildings.
• Sublease Inventory Continues to Tighten: Sublease space now represents just 14.3% of total available office space, down significantly from peak levels as tenants absorb space and occupancy improves.

Submarket Statistics

Significant Sale Transactions 2Q 2026

Significant Lease Transactions 2Q 2026