United States: San Francisco office market - H1 2026
Office demand has grown for four straight quarters, a trend not seen since 2018. This growth is mainly driven by AI companies leasing mid-sized office spaces.
Positive Absorption Continues Momentum in SF
San Francisco recorded nearly 2 million SF of positive absorption during the first half of 2026, the highest mark of occupancy growth to start a year since pre-pandemic. Since vacancy peaked at 36.7% in Q1 2025, the market has regained 3M SF of occupancy. There have been four-consecutive quarters of positive absorption, a streak that hasn't been achieved since 2018. AI leasing remained the primary driver of office demand, with a growing portion of that activity concentrated in mid-block-sized spaces. No longer reliant on a small number of headline deals, San Francisco's office market has evolved into a hub for diverse AI companies expanding their footprints across multiple submarkets.
Hot Tenant Demand Encourages Lowering Vacancy Rates
Leasing activity continued to ramp up in the first half of 2026 as 3.6 million SF was transacted during Q2 – bringing the 2026 first half total to nearly 7 million SF, the strongest first half on record. This activity continues to drive direct vacancy down, dropping 130 bps year-over-year and nearly 4% since the peak in 2024. This is giving the landlords greater pricing power, especially in the much-demanded prime spaces as rates have risen over $3 year-over-year.
Investment Volume Strong to Start 2026
Office investment sales eclipsed $1 billion during the first half of 2026, with much of that volume taking place during Q1. This was led by a 4-property sale at 600 Montgomery Street for $600 million ($1,165/sf). Although deals slowed during Q2, a significant number of additional properties are currently under contract signaling a strong pipeline heading into the second half of the year. Other (non-office) investment deals are trending to put up similar numbers seen over the previous 2 years.