San Francisco office continues hot streak

The race for office space in San Francisco has put a lead foot on the pedal, and there are few, if any, signs of a slowdown.

Throughout the year, headlines, analysts’ data, and claims from brokers implied that 2025 was already San Francisco’s get-right year. Then, numbers reported earlier this week from real estate analytics firm Co-Star indicated that leasing in the fourth quarter trumped the rest and kicked into yet another gear. Between October and December, San Francisco’s office market — for which Co-Star combines San Francisco and San Mateo counties — notched 2 million square feet of net absorption according to the reports.

In San Francisco proper, this momentum helped bring the city’s office vacancy rate down from 34.4 to 32.8 percent, according to CBRE, which also reported that nearly 90 percent of that absorption in the fourth quarter absorption — and throughout 2025 for that matter — happened through Class A leases. Yet, CBRE’s report warned, don’t expect the appetite for Class A buildings to eventually energize interest in Class B. Instead, the firm predicts that as high-quality offices get eaten up, it will give way to new construction of ever newer, nicer offices.

Artificial intelligence has driven the hype, but the burgeoning industry isn’t alone in its search for space. CBRE says companies are actively on the prowl for about 8 million square feet of office, and companies beyond the AI sector account for more than half of the current demand.

By all indications, the first quarter of 2026 is off to a similarly fast start. On Friday, Transamerica Pyramid operator SHVO announced that it inked three leases for a total of 25,000 square feet in its own Class A trophy office building. SHVO CEO Michael Shvo said one of the leases went for more than $300 per square foot, which for 4,000 square feet works out at $1.2 million per year. Shvo claimed this is not only a San Francisco record, but a West Coast record, and the second highest price-per-square-foot lease in the country. The Real Deal could not independently verify this claim.

The leases come on the heels of a busy December, during which SHVO signed on nine tenants for 220,000 square feet. The building, one of San Francisco’s most emblematic, now sits at 85 percent occupied, according to a SHVO spokesperson.

A tale of two Beaux Arts buildings

After Bay Area-based Kylli defaulted on a $350 million loan in November 2024, the fate of the 22-story office tower at 225 Bush Street that the company used as collateral has sat stuck.

Now it has begun to wiggle free. Earlier this week, the loan’s special servicer, K-Star Asset Management LLC, is reportedly in discussion with JLL about putting the loan on the market. If the debt does indeed go up for sale, the buyer could foreclose on the property or work out a deal with Kylli to take over the building.

Like many older office buildings in San Francisco — this one, designed by George W. Kelham for John D. Rockefeller in the 1920s — 225 Bush St.’s fortunes have fallen dramatically since the pandemic. The building went from fully occupied in 2020 to more than 60 percent vacant as of September 2025, according to Morningstar Credit.

Only a few blocks away at 685 Market St., Brookfield Office Properties has put up the 10-story Monadnock Building for sale. This 1907 Beaux-Arts structure, with nearly 200,000 square feet of office space is 75 percent leased. The anchor tenant, tech platform company Notion Labs Inc, occupies about half the building and has 10 years left on its lease. Brookfield bought the property for $80 million in 2013, and followed it up with a renovation. JLL is brokering the sale, and has not listed a price.

San Francisco has operated as a feast or famine market. While leasing is up, few trophy spaces have traded hands and older office properties have cratered in value. One private equity executive told The Real Deal earlier this month that money has been tight for office purchases in the city. Yet, the well-leased Monadnock Building brings something slightly different to the table – a historic structure with an anchor tenant and some space to lease.