The San Francisco CBD office market has seen a resurgence over the last year, with both tenant demand and investment activity rising.
Accelerating net absorption from AI tenants, a more attractive political landscape and increasing interest from institutional equity and lenders should continue to drive improvement. This will particularly continue at the higher end of the office market, where tenant demand has been concentrated to date, according to Bayle Smith, managing director of advisory and consulting, at Green Street.
“Effective rent growth will likely take more time to materialize broadly, as availability rates remain near record highs and concessions are likely to remain relatively high,” Smith told GlobeSt.com.
“With new leasing demand concentrated in trophy buildings and view space, we should see meaningful improvement in vacancy at the top end of the market in the coming year.”
Even still, Smith said that a broader-based recovery in demand across traditional office-using employers will be necessary to drive recovery for more commodity-like space.
AI Leasing Activity Accelerated in 2025
In San Francisco, leasing activity by AI companies accelerated in 2025, reaching 2.5 million square feet, the highest total since the industry became a significant source of office space demand in 2018, according to CBRE’s office leasing market summary for Q4 2025.
Its preliminary notes found that AI companies accounted for 25% of the 10.2 million square feet leased in 2025 and 12% or seven million square feet of total occupied office space.
Vacancy declined by three percentage points year-over-year to 33.5% in Q4 2025, the largest decline since 2011, Colin Yasukochi, executive director of CBRE’s tech insights center, told GlobeSt.com.
AI companies accounted for 82% (1.8 million square feet) of the 2.2 million square feet of net absorption in 2025. The previous overall net absorption high was 3.9 million square feet in 2018.
“The expectation is for continued demand growth in 2026 and further reductions in vacancy,” Yasukochi said. “Competition for high-quality buildings, locations, and spaces that require minimal tenant improvements remains high despite 30 million square feet of vacant space.”
CBRE reported that tenants in the market are looking for eight million square feet office space, an all-time high. About three million square feet represents expected net absorption growth. AI companies account for 2.8 million square feet of this demand and 1.7 million square feet of expected net absorption.
Reinvestment, Confidence, and Urban Renewal
San Francisco’s recovery represents a rare alignment of fundamentals driving it, Cyrus Sanandaji, founder and managing principal, Presidio Bay Ventures, told GlobeSt.com.
“We have political will and pragmatic leadership in place, improving demand and leasing fundamentals that are not solely dependent on AI, and a rational marketplace where buyers and sellers are operating in the same reality,” he said.
The bid-ask spread has closed, capital is reengaging and the city is no longer being defined by headline risk or perception, Sanandaji said.
“That shift matters, and the mayor has done a strong job resetting how San Francisco is viewed nationally,” he said.
“These forces are driving new investment across office, retail, and apartments, from repositioning buildings trading below replacement cost to renewed interest in land for future development.”
Presidio Bay’s project, The Spear, focuses on placemaking and developing true downtown destinations.
“We are proud to have put up the first crane downtown in this cycle, not just as a construction milestone, but as a signal that San Francisco’s recovery is being built in real time,” Sanandaji said.
“Sustaining this momentum requires a downtown that functions as a 24/7 environment, centered on community, engagement, health, wellness, and cultural energy, rather than a 9-to-5 business district or reliance on any single industry.”
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