Peninsula Industrial Market Levels Out As AI, Robotics Firms Move In
The San Francisco Peninsula’s industrial market has loosened just enough for a new wave of tenants to set up shop.
AI hardware, robotics and logistics firms are filling the gaps left by departing manufacturers. The market showed signs of stabilization in Q3 after a few quarters of record-high availability and vacancy.
Availability decreased by 12 basis points year-over-year to 7.0%, while overall vacancy remained mostly flat at 5.5% at the end of the quarter, according to CBRE.
“We had a pretty steady increase in vacancy over the past couple years that has sort of plateaued now, where we’re not getting that upward trajectory anymore. That’s because of the increase in leasing activity we’ve had,” said Karl Hansen, senior vice president at CBRE. “So we’ve had a much more active year, a better year from a leasing perspective, in 2025.”
Leasing activity totaled just under 500K SF in the third quarter, the bulk of it in warehouse space, which accounted for 94.3% of total activity. Notably, about 60% of transactions were 10K SF or smaller.
The peninsula has a very limited supply of developable land. The space that exists is further constrained by code changes to areas zoned for industrial use. It is compounded by the high cost of labor and materials, making new construction unlikely in the immediate future.
Traditional manufacturing has shifted out of the Peninsula toward the East Bay and Central Valley, while new users tied to advanced manufacturing and hardware production have begun to backfill existing space.
Autonomous drone delivery company Zipline signed a 46K SF lease at the Eccles Avenue Industrial Complex in South San Francisco, bringing its total footprint to 97K SF. It was the largest deal of the quarter.
“Those companies go hand-in-hand with the AI trend in San Francisco with office leasing,” Hansen said.
Nearly 1M SF of office space has been leased by 83 AI firms so far this year.
Industrial asking rates have remained stable at $1.85 per SF, unchanged since Q2, but landlords are offering leasing incentives with competitive terms.
“We still have quite a bit of inventory to work through, but for businesses, for buyers, for tenants, that’s a positive thing,” Hansen said. “We have a good runway ahead of us.”
