San Francisco Office Vacancy Down 5 Points in a Year

San Francisco’s battered office market is showing signs of a real turnaround, with artificial intelligence companies fueling the strongest decline in the vacancy rate of any major U.S. city.

Office vacancy fell to roughly 29.7 percent in the second quarter, down from 34.7 percent a year earlier, the San Francisco Business Times reported, citing CBRE data. The 5-percentage-point drop was the largest year-over-year improvement in the country, driven largely by AI firms rapidly expanding their footprints as they grow.

AI companies have accounted for 30 percent of all leasing activity since 2023 and more than three-quarters of the market’s net absorption, making the sector the primary force behind the recovery, Colin Yasukochi, executive director of CBRE’s Tech Insights Center, told the outlet. “[That makes] this industry the primary reason for vacancy reduction,” Yasukochi said.

AI-powered companies like Assort Health, Mercor and Fal have all upgraded into significantly larger offices in recent months. Assort’s new 62,400-square-foot lease at One Market is more than three times the size of its previous offices at 655 Montgomery Street, and Mercor more than doubled its presence in Meta’s former offices at 181 Fremont Street.

The leasing surge has pushed market fundamentals higher. Tenants signed 2.8 million square feet during the second quarter, bringing the year-to-date total to 7 million square feet. Net absorption reached nearly 646,000 square feet for the quarter and 2.9 million square feet for the first half of the year, already topping all of 2025. Asking rents climbed 4.3 percentage points year over year to $71.67 per square foot.

Some of the city’s largest tenants helped reshape the market. The City of San Francisco inked the largest lease in the city in nearly a decade, grabbing an additional 502,000 square feet at 1455 Market Street and boosting the building’s occupancy to 89 percent after years of elevated vacancy.

Anthropic has been expanding quickly around its Mission Bay headquarters, converting its sublease at 500 Howard Street into a direct lease and recently crossing the 1-million-square-foot milestone. Ripple and PwC renewed large office commitments, with Ripple renewing its 124,547-square-foot full-building lease at 600 Battery Street, and PwC renewed its deal for 196,356 square feet at 405 Howard.

As it stands, tenants are currently seeking a record 8.9 million square feet of office space, including 3.1 million square feet from 53 AI companies actively in the market, according to CBRE estimates. There are 30 tenants searching for blocks larger than 100,000 square feet, with AI firms accounting for 11 of those.

The leasing rebound is also spilling into investment sales. Roughly 20 office buildings are either under contract or on the market, with industry observers expecting San Francisco office sales to approach $5 billion this year.

— Chris Malone Méndez