San Francisco’s Rebounding Office Market: The Tailwinds Blowing Away the Fog

San Francisco — and the Silicon Valley tech industry — often depends on slightly fuzzy math, with optimistic growth plans fueling funding rounds and rapid expansion. 

Now a certain kind of growth mindset has taken hold of the city’s office landlords, too, especially those seeking to plug San Francisco’s expanse of empty office space with tenants from the growing generative AI industry. 

The city saw its best first quarter of leasing activity since 2015 in the first three months of the year, with 3.4 million square feet in leasing driven by tech leases and renewals. As it happened, concessions reached a historic high during the same time, showing how even as the market bounces back from the bottom, there’s still aggressive moves to cement topline rents and attract tenants.

According to a first-quarter analysis from Savills, asking rent decreased from $67.84 per square foot at the end of 2024 to $66.33, with concessions hitting record levels, especially for Class A and trophy properties. Some tenants are getting two months of free for every year in the lease term. Select sizable tenants are even signing 12- or 13-year leases with institutional landlords with tenant improvement (TI) allowances hitting $20 a square foot, a sum comparable to TI costs in Manhattan. 

“Tenants are not kicking the can down the road and doing these short-term renewals anymore,” said JLL (JLL) Senior Vice President Tom Doupe. “They’re confident enough in what their footprint needs to be, what their space needs to look like, to make the long-term commitments.”

These concessions have outpaced those found in the ultra-competitive, zero-interest-rate tech boom of the 2010s, said Colin Yasukochi, executive director of CBRE (CBRE)’s Tech Insights Center in San Francisco.

“It’s a new level for two reasons,” Yasukochi said. “On the tenant improvement side, construction costs are dramatically higher than they were back in 2010, even dramatically higher than pre-pandemic. It’s wild. And the free rent is a bit more generous. It’s a way for property owners to lease the space and keep their building valuation going forward.”

It’s hard to see landlords not seeking to placate tenants in an office market with 35.8 percent vacancy. But with many analysts saying San Francisco hit bottom during the second half of last year, the upward momentum is palpable. A series of large deals, including AI firms like Rippling signing big leases and tech stalwarts signing big renewals, outweighed the supply and sublease space that hit the market. The city now hosts approximately 470 generative AI firms, with 800 total in the greater Bay Area.

That AI leasing market has been active for the last two years, with some companies even signing multiple leasing deals as they expand. That includes Sierra AI, which took another floor at 235 Second Street in February. Other big tech deals in San Francisco so far in 2025 include Databricks, which is moving into Barker Pacific Group’s 1 Sansome Street, and Tools for Humanity, a Sam Altman-backed firm, taking over all 87,000 square feet of 600 Townsend Street East. 

According to Christine Yuen, senior vice president of leasing for owner BXP, both Altman’s Open AI and competitor Anthropic are on the hunt for additional space right now. BXP has been taking AI firms on tours of its 680 Folsom development.

“There is a wave of tenants trying to take advantage of the good deal they can get right now,” Yuen said. 

JLL data shows 2.5 million square feet of AI industry leasing in the city in 2023 and 2024. There’s been 300,000 square feet so far this year, with another 1 million expected to be completed by the end of the year. The AI industry represents roughly 20 percent of the tenants in the San Francisco market, too. Doupe says he wants annual leasing activity in the sector to be closer to 10 million square feet. 

“There’s a strong perception in the market that AI still has a ways to go,” said Nigel Hughes, a senior director of analytics at CoStar (CSGP). “There’s still plenty more growth potential. And San Francisco is very much the focus for that growth.” 

San Francisco office tenants, and rising AI firms, follow the same flight-to-qualitymodel found across the country. Yet, while generative AI firms do seek out transportation options, retail amenities on the ground floor, high-quality buildings and good views, said CBRE’s Yasukochi, the most important factor may simply be time. 

The heated race to refine and release new large language models, tools and chatbots means AI firms require turnkey spaces, avoiding spaces that require months of fit-out work to occupy. Building out a shell space in six months won’t do for potential tenants locked in a frenzied race to outpace the competition. They don’t even have time to pick out furniture. 

“Some landlords are going right in and furnishing space so tenants can move in tomorrow,” said Doupe. “I would consider this another type of concession, though it may not meet the traditional definition.”

AI firms, especially venture-backed startups, remain the only kind that can suddenly take several hundred thousand square feet. Even the public tech giants aren’t necessarily taking on more space, since they still have significant inventory. While sectors such as law have been more active, they’re not really growing in San Francisco, said Yasukochi. 

“When it comes to growth and expansion and taking on new space, I would say that it’s very, very dependent on the tech industry, and also on AI, because those two are very interrelated,” he said.

This tech-heavy leasing surge in San Francisco has taken place against the backdrop of a new mayor in political novice Daniel Lurie, and a subtly shifting perception of downtown and public safety, which has been a focus of the nascent administration. Amid a push for safer streets, more efficient construction permitting and a new housing plan, Lurie aims to support business and help San Francisco build. 

The central business district has been the best-performing market in the city in recent quarters, with roughly 68,000 square feet at least of positive office absorption so far this year. Investments in programming and public space, as well as a tech-led return-to-office push, has brought more life and leasing back to the neighborhood. Lurie’s launch of a design competition for Market Street with the local chapter of the Urban Land Institute also seeks to breathe new life into one of the city’s main corridors. 

“Looking at San Francisco’s downtown, I would say there’s definitely a kind of new moment of optimism that you can feel,” said Laura Crescimano, co-founder and principal of SiteLab Urban Studio, a design firm.

A challenge for the market, said Yasukochi, is that despite the potential to lure AI firms, landlords aren’t as comfortable building on spec, and much of the easy-to-move-in spaces have been taken. Much of the availability in the premium portion of the market is represented by One Market Plaza, said BXP’s Yuen. Google gave up some space in the 1.6 million-square-foot office complex, a law firm moved away, and Visa last spring relocated its headquarters to Mission Bay.

“The rest of the premier market is doing relatively well,” she said. “If you have a high floor with views, you’re gonna get looks on those spaces.”

Compared to Manhattan, where there’s been substantial full-scale reinvestment in older buildings to bolster amenities and attractiveness, San Francisco isn’t seeing as much renovation and rehab work. Yuen said landlords are taking amenities “to another level,” investing in retail, gyms and amenity centers. BXP did as much at the Embarcadero Center. 

“The easy-to-lease-type spaces have begun to diminish,” Yasukochi said. “The problem tenants run into today is that they look at 20 spaces, and find only two or three really meet their requirements.” 

But finding a space doesn’t matter if you can’t afford it. Today’s continued economic uncertainty, from tariff impacts to interest rates to America’s place as a financial bellwether, haven’t yet impacted the pace of today’s young tech companies, said Yasukochi. But, if these situations continue through the rest of the year, there may be impacts felt from the loss of not only critical imports but a loss of venture capital enthusiasm. 

“If you look back in 2010 or 2012, we didn’t know who Uber was, we didn’t know who Airbnb was, we didn’t know who Stripe was,” said Yuen. “Those are all household names. We’re waiting for the next wave to happen, and we feel really strongly that’s going to happen in the AI sector.”