Can San Francisco’s Office Market Rebound in 2025?

According to The Real Deal, San Francisco’s Downtown office market continues to face significant challenges—like a 36.9% vacancy rate—nearly five years after the pandemic’s onset. 

But more leasing from tech, particularly AI startups, signals a potential recovery in 2025.

Slow Recovery

With high vacancies, economic hurdles, and a damaged reputation for public safety, recovery remains slow. However, new signs of activity in the tech sector and public policy changes could turn the tide next year.

Chief Economist Ted Egan notes that San Francisco’s recovery has been disproportionately affected by rising interest rates and ongoing difficulties in tech and construction. Both industries are vital to the city’s economy, and their struggles have contributed to declines in key economic indicators.

Tech Leasing Hope

Amid these challenges, tech companies are emerging as a bright spot. AI startups have absorbed 3.9 MSF of office space since 2019, making San Francisco and Silicon Valley prime markets for AI leasing.

Recent months also saw the highest tech leasing activity in five years, signaling renewed interest from the sector.

Additionally, companies touring San Francisco office spaces between August and October sought 2.7 MSF, suggesting growing demand. This uptick may also attract large institutional investors back to the Downtown office market, which has been dominated by local players in recent years.

Business Not as Usual

Downtown’s reputation remains a hurdle, with retail theft and crime deterring tenants. The passage of Proposition 36, reclassifying certain crimes as felonies, and the election of new Mayor Daniel Lurie is expected to improve public safety and the business environment.

Businesses like Finix, which mandates four days a week in the office, could help revitalize the Downtown core by driving demand for collaborative office spaces. Other major employers, including Amazon (AMZN) and Salesforce (CRM), also embrace return-to-office policies, further supporting recovery.

What’s Next

While challenges persist, the growing activity in the tech sector and policy shifts aimed at addressing public safety provide reasons for cautious optimism. 

If these trends continue, San Francisco’s Downtown office market may begin turning the corner in 2025.