Jamestown's purchase of Levi's Plaza for $826 million was one of the largest office deals in city history.

SAN FRANCISCO—At the end of the third quarter, the overall vacancy rate dropped 40 basis points to 2.8% and overall availability dropped 70 basis points to 7.8%, while demand of 7.6 million square feet outpaced supply. Year-to-date leasing activity remained constrained, down 26.3% compared with the same period last year, according to a third-quarter report by Newmark Knight Frank. Despite the tight market, more than 1 million square feet was absorbed during the quarter, with more than half resulting from Dropbox's move into 656,482 square feet at 1800 Owens St.

Of the 3.3 million square feet currently under construction, 84% has been pre-leased or is rumored to be in leases. Although the city granted Prop M allocations to several developments during the summer, these projects are not expected to break ground this year. As a result, vacancy is expected to stay low, and supply and demand will remain unbalanced until at least 2022 or 2023.

The restricted supply continues to push asking rates, which increased 8.9% year-over-year to $82.23 per square foot. Class-A asking rates increased 10.5% year-over-year to $91.22 per square foot, says the report.