San Francisco Office Is Hot (Again)

It can be confusing to understand the leasing dynamic in a city like San Francisco. The data suggests a market in which occupiers should enjoy outsized leverage. Vacancy remains north of 30%, after all. Yet many companies are surprised to encounter real competition for space and rental rates at or near all-time highs. How can both be true?

The answer lies in how that vacancy is distributed. Excess vacancy is concentrated in assets that are either fundamentally inferior or burdened by a distressed capital stack. Occupiers are largely bypassing inferior buildings as they focus on higher-quality environments to support a return to the office. At the same time, buildings with broken capital stacks often cannot transact at market terms, rendering them largely irrelevant to active tenants. As a result, effective vacancy for quality space is far lower than headline figures suggest. In the Class A premium segment, vacancy is closer to 5%.

As more companies work to bring employees back, a new narrative is emerging. The office must be well designed, well located, and rich in amenities. Employers recognize the friction inherent in return-to-office initiatives and want to get it right. Increasingly, they are willing to pay more for space that delivers a compelling experience. This same logic explains why several large-scale office developments are actively pursuing tenants with plans to build in the near term.

Leasing volume reached historic highs in 2025, and anecdotal evidence from early 2026 points to another year of strong demand.The “generational” leverage tenants enjoyed from 2022 through 2024 has largely evaporated. We expect tenant leverage to continue eroding in cases where occupiers are competing for high-quality space.