United States: San Francisco office market - 2025
With a positive Q4 at 950,610 SF, the fourth quarter marks only the third time the market has seen positive net absorption since the start of the pandemic in the first quarter of 2020.
Strongest Quarter of Positive Net Absorption since Pre-Pandemic
With a positive Q4 at 950,610 SF, the fourth quarter marks only the third time the market has seen positive net absorption since the start of the pandemic in the first quarter of 2020. This also marks the highest quarterly positive net absorption since Q2 2018. This is despite a slight uptick in the San Francisco metro unemployment rate increasing by 10 basis points.
Hot Tenant Demand Encourages Lowering Vacancy Rates
For 21 consecutive quarters, San Francisco's citywide vacancy rate has rose up until Q1 2025, reaching a high of 36.7%. Transwestern was correct in believing that marked the peak as San Francisco has seen three-consecutive quarters of declining vacancy rates. Although far from historical norms, Q4 vacancy rate closed at 34.2%, marking a 2.5% decrease from historic highs. With both deal count and activity increasing this year, the combination of these factors is expected to lead to a continued reduction in vacancy rates moving forward. However, because of the drastic increase in tenant activity, rents are eager to retain their previous high standings leading to a high increase in prime spaces.
Investment Volume Strong to Close out 2025
2025 marks the first time since 2021 that office sales have eclipsed $1 billion in activity, totaling $1.79 billion on the year. Q4 totaled just over $700 million in office sales, marking the highest quarterly number since Q1 2021. This is also well above the 5-year quarterly average of $257 million.