Demand for office space in San Francisco continued to rise in the third quarter of 2024, giving beleaguered landlords hope that the city’s fortunes may be regaining some luster.
Annual new leasing volume increased to 10.4 million square feet. That’s a 50% increase over the 6.9 million square feet total of a year ago and the highest annual amount since 2020.
Over the past four years, San Francisco has seen its office vacancy rate rise from the lowest in the nation to the highest. A perfect storm of COVID-19 pandemic lockdowns, remote working and layoffs by technology companies caused tenants to downsize at record levels, resulting in half-empty office buildings and owners struggling to keep hold of their properties as the cost of debt increased and values fell.
However, in 2024, the worst seems to be over. The pace of downsizing has slowed, and new leasing activity has increased.
Artificial intelligence companies have led the resurgence in leasing, with over 1 million square feet of new leases signed in the past 12 months. The largest AI leases in the second half of 2024 include OpenAI’s leasing of just over 300,000 square feet at 550 Terry A. Francois Blvd. in Mission Bay, Notion AI’s 105,000-square-foot lease at 685 Market St., and xAI’s sublease of the about 37,000 square-foot former OpenAI headquarters at 3180 18th St. in the Mission.
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Heading into 2025, there are other reasons San Francisco’s office market may continue to perform well. Return-to-office moratoriums from some of the city’s largest employers and increased space requirements from a broader range of businesses beyond the AI segment give local industry participants hope that the current momentum can be maintained.
