San Francisco's office market is on the brink of a major comeback, and 2026 could be the year it truly proves itself. After a challenging period, the city's office sector is showing signs of life, with a wave of AI-related leasing activity providing a much-needed boost.
The healing process has attracted some major developers back to the city, including Hines and Lincoln Property Co., who are in the early stages of planning new office projects. As we enter 2026, the city's office brokers are hopeful for another strong year that solidifies this progress.
"The momentum we saw in 2025 was more than just a feeling; it was backed by data," said Christina Clark, Vice Chairman at Newmark. "And I believe that trend will continue, leading to a very healthy and positive outlook for the next few quarters. The numbers will speak for themselves in 2026, confirming the optimism felt at the end of 2024."
The third quarter of 2025 saw tenants take up 1 million square feet of office space on a net basis, marking the fifth consecutive quarter of positive absorption for San Francisco. The city's vacancy rate decreased by 3.7% during 2025, the largest annual decrease since 2011.
AI companies have been a driving force behind this leasing momentum. Sierra AI signed the largest lease of the fourth quarter, taking 258,000 square feet at 185 Berry Street, following in the footsteps of OpenAI and Nvidia, who also secured significant deals.
But it's not just AI firms; other types of tenants are also active in the market. Kirkland & Ellis and DocuSign renewed their downtown San Francisco leases, while fintech company Carta and fitness-tracker maker Ouraring found new homes. These tenants are not only leasing new spaces but also renewing their commitments to the city.
"What we're seeing is a sense of urgency from these companies," Clark explained. "They want their spaces fast, with a 12-month or 24-month timeline for occupancy. There's no time to waste."
However, despite the urgency and the impressive market capitalizations of these companies, there is a notable difference between today's market and San Francisco's last boom.
"Today's tenants are looking for smaller spaces, typically around 100,000 square feet, compared to the massive 500,000-square-foot deals we saw in the 2010s from tech giants like Google, Meta, and Salesforce," Clark said. "They're seeking the highest quality spaces the city has to offer."
Colin Yasukochi, Executive Director of CBRE's San Francisco office, noted that deals like OpenAI's move into former Uber space in Mission Bay highlight the appeal of turnkey, heavily improved offices. However, such spaces are becoming scarce, forcing new construction to compete with a shrinking inventory of buildings that can meet tenant needs.
"Some tenants are already thinking beyond the next lease cycle," Clark added. "As of Q4, there were no new office spaces in the construction pipeline, according to CBRE. But I believe we'll see a shift in the coming years, with AI companies thinking bigger and more long-term as they build depth in their portfolios."
This shift has developers gearing up for new projects. Hines has filed permits for a potential tower at 77 Beale Street, which could become San Francisco's tallest, standing at roughly 1,225 feet. Meanwhile, Lincoln Property Co. and McCourt Partners are in talks for a potential redevelopment of the former Golden Gate University campus at 536 Mission Street, with plans for either a mixed-use or office tower.
"Institutional investors are returning to the market after sitting on the sidelines," said Yasukochi. "They're willing to take risks because they see significant upside potential."
On the construction side, early-stage activity is increasing. Tom Soohoo, a senior executive at Webcor, noted that developers in the private market have been requesting pricing from general contractors, indicating a rise in interest.
"While pricing requests don't always lead to projects moving forward, it's a clear sign of a departure from the immediate post-downturn period," Soohoo cautioned.
However, the gap between interest and execution remains wide. Most proposed projects are contingent on securing major tenant commitments, and challenges such as construction timelines, elevated interest rates, and lease-up risk make securing financing difficult.
For now, San Francisco's office market has an ample supply of space, but it's lacking the specific type of space that today's tenants desire - spaces that are the right size, in high-quality buildings, and capable of supporting modern infrastructure without excessive retrofit costs.
"There was a period of silence, with little to no activity," Soohoo recalled. "But when we receive requests for updated pricing, it's a sign of optimism, even if it doesn't guarantee a project will go ahead."
Interest is coming from a mix of developers, with larger, more established players leading the way in terms of credibility.
"We've had inquiries from both big institutional developers and smaller ones," Soohoo said. "The institutional groups tend to be more serious, while the smaller developers are often testing the waters to see if they can secure financing."
As San Francisco's office market continues its journey towards recovery, the question remains: Will 2026 be the year it solidifies its comeback, or will challenges persist? Only time will tell.
