AI Tenants Fuel Bay Area’s Office Market Rebound
A wave of demand from artificial intelligence firms is breathing new life into the Bay Area’s office sector, driving leasing activity to new postpandemic highs and slashing vacancy rates.
The region saw its sharpest quarterly drop in vacancy since the first quarter of 2015, with rates falling 70 basis points to 35.1%, according to CBRE’s preliminary office data for Q2. The decline is the result of rising net absorption and a number of significant new deals.
AI-related companies accounted for more than 800K SF of leases across Q1 and Q2, with about 75% of the total representing new leases. That demand helped fuel 610K SF of net absorption in Q2, the strongest quarterly total since Q3 2018. It also marked the third straight quarter of positive absorption, totaling 1.1M SF since Q4 2024. AI firms accounted for 1M SF of the total.
The AI race took off in 2024, when OpenAI led the charge with a 315K SF lease in Mission Bay in the fall. AI startup Sierra doubled its footprint at 235 Second St. in the city's SoMa neighborhood to 82K SF in February. AI company Databricks signed a lease for a 150K SF headquarters at the One Sansome building in March.
More big announcements could be on the way. There are 39 AI-related companies in the market for 1.4M SF. An estimated 1M SF of that is expected to represent net new growth, according to CBRE Executive Director of Tech Insights Colin Yasukochi.
Leasing volume totaled 2.3M SF in Q2, bringing year-to-date activity to 5.2M SF. That puts 2025 on pace to be the highest year for office leasing since 2019, when the region hit 12.6M SF of leased office space.
Several large non-AI deals also bolstered the quarter’s performance. The city and county of San Francisco signed a 232K SF lease at 1455 Market St., while LinkedIn renewed 165K SF at 222 2nd St. Coinbase leased 165K SF at the Giants' Mission Rock development, a notable win for a project that has sought high-profile tenants.
Availability fell 110 basis points as tenants locked in new leases. At the same time, demand remains elevated, with tenant requirements hovering at 5.2M SF, roughly flat from Q1.
Asking rates remain stable. But as AI companies continue to drive increased competition, tenants can expect to see rents rise and concessions become more rare, Yasukochi said.
