How Will Landlords Respond to a Recovering Market?

San Francisco’s office market decline post-2021 unfolded slowly, as landlords entered the downturn with strong fundamentals, including record occupancy, high NOI, and long WALT. Holding firm made strategic sense while testing the durability of remote work. But as hybrid and remote workplace models took hold, rent values ultimately dropped by 25% or more from pre-pandemic highs, a correction that only fully materialized in the past year (excepting the premium building/premium view market, which has steadily appreciated above pre-pandemic highs).

Now, momentum is shifting. Q2 2025 saw 2.1M SF of new leasing, a level well above the 1.6M SF quarterly average since 2006. With AI driving demand and office culture regaining strength, San Francisco is on pace to surpass 2019’s record new leasing activity.

So, what’s next? Expect landlords to get bolder: raising asking rents, tightening concessions, and standing firmer in negotiations. Still, with 35% vacancy and ongoing distressed sales resulting in new, lower cost bases, tenants retain significant leverage.  The 35% vacancy is not spread evenly across the market.  Some have more pain than others, widening the gap between high and low lease values achieved in otherwise comparable buildings.  But make no mistake, landlords will push hard to raise rents, translating every positive datapoint as justification for their effort.  Remember: rents always rise faster than they fall.