The Fog Is Finally Clearing For San Francisco's Office Market As Tailwinds Converge

San Francisco seems to have stopped the bleeding.

More than five years out from the pandemic that rocked a once-rollicking office market, all signs are pointing to emergence from the deep pit dug by remote work and the country’s mass exodus from downtowns. 

On the back of an artificial intelligence boom that has juiced an otherwise stagnant tech industry, return-to-office successes and a public perception improvement campaign, office leasing in the city has vastly outstripped the rest of the country in the first half of 2025. 

“We're in full swing of the recovery,” said Louis Thibault, manager of the market intelligence office at Avison Young.

Office properties in the City by the Bay posted a 61% increase in leasing activity in the first half of the year compared to the same period in 2024, according to Avison Young. Nationwide, leasing fell by 14%.

It’s not a total comeback. San Francisco is still 20% shy of its prepandemic average for office leasing and has plenty of challenges ahead of it. But there are also many metrics that have commercial real estate professionals in the city cheering. 

The city had 2.7M SF of office leasing activity in the second quarter, a level not seen since Q3 2019, according to Thibault. Demand and active tenants continued to grow quarter-over-quarter, approaching the 2019 peak of 9M SF of demand, with 8M SF of active tenants in the market right now.

The return to the office seems to finally have some traction in the city as well, with major tech companies like Google, Apple and Meta all requiring employees to be in the office three or more days per week.

Kastle Systems data shows three weeks of significant growth in office usage in the city through July, reaching 53.7% of prepandemic usage for the week of July 21, up from 39.3% in the first full week of the month.

The city’s rebound is propelled by converging forces, the largest being a rapidly growing AI sector gobbling up office space. Through the first half of 2025, the Bay Area captured $55B in venture capital funding for AI, 78.2% of the nation's total. And 78.2% of the Bay Area’s total VC funding is also AI funding, according to Avison Young. 

The well-documented growth in AI has brought with it scores of new businesses and prospective tenants.

“It's not just the AI company itself. It's all of the auxiliary services and service providers that want to be in San Francisco to participate in the AI ecosystem that's being built,” said Darren Hollak, managing director at Newmark.  

High-level international law firms are moving into the city for the first time to take advantage of proximity to the AI industry. It has led to a level of in-migration he said he hasn’t seen before. 

“Software companies, for example, I don't think they have that same type of impact,” Hollak said. “And it seems like with AI, it's fundamentally pretty different.”

“This is the first time we've actually seen direct availability go down also since Q3 2019,” Thibault said. 

The trend continues in fits and starts, correlating with the unpredictable trajectories of the companies driving it. 

“These tech companies are being very, very conservative,” Avison Young principal Ross Robinson said. “I have a tour every week with a new AI company that's telling me, ‘Right now I'm six people, but I'm going to be at 50 in three months.’”

That caution is affecting lease terms. Robinson said he is seeing shorter leases than he ever has in his career. In the mid-2010s, average leases were 10 years, with shorter leases at five to seven years. Today, tenants seek 12-, 18- and 24-month terms on smaller spaces. 

The small lease sizes mean the city’s recovery could be slow, however.

“San Francisco needs the big leases to gobble up big chunks of space, and if you have to do it 2K SF to 3K SF at a time in a 90M SF market, it's going to take a really long time,” Robinson said.

There are some exceptions. Last quarter, companies like LinkedIn, Coinbase and Morrison Foerster picked up the larger leases needed to speed up that recovery. Coinbase signed a 150K SF lease at Mission Rock, while LinkedIn renewed its 150K SF SoMa lease and Morrison & Foerster moved into 112K SF.

Perhaps the biggest indicator of renewed health in the city is Hines’ proposal for a 1.6M SF office tower that would overshadow San Francisco’s existing tallest building, the Salesforce Tower. If built as proposed, the project would be the tallest tower on the West Coast.

“In 2022, 2023, the only capital was high net worth capital, because they were able to make their own decisions and take risks,” Hollak said. “Now, we're seeing the institutional capital. And that’s to do with the headlines and perception.”

To help shift the narrative, Mayor Daniel Lurie has leaned into social media in a strategic push to counter years of negative headlines and change the narrative. His social media posts offer “boots-on-the-ground” evidence that the city is thriving at the street level, an important factor tenants consider when looking for office space, the San Francisco Chronicle reported. 

“That headline risk is gone,” Hollak said. “San Francisco now is kind of in a market where people have a level of comfort investing.”

When Greg Flynn acquired Market Center in June for $177M, the biggest office deal in the city since 2022, Lurie appeared in an Instagram post with Flynn to announce it. The post highlighted Flynn’s confidence in the city to make the investment, and that investment could inspire more confidence. 

Newmark is handling the sale of the $187.5M loan tied to the KPMG Building at 55 Second St. The deal has piqued the interest of a slew of potential buyers that may not have previously considered the possibility. 

“We had bids from 25 groups, the majority of which were groups that have not invested and had not been in San Francisco in the past three to five years,” said Roman Adler, executive managing director at Newmark.