For the past few years, the narrative around San Francisco office has been simple: historic vacancy, abundant sublease space, and unprecedented tenant leverage.
And for a while, that was absolutely true.
But markets don’t stay frozen in time.
While vacancy remains elevated compared to pre-2020 levels, the momentum underneath the headlines is changing.
Let’s take a closer look at what’s actually happening.
Yes, Vacancy Is Still High, But That’s Not the Whole Story.
San Francisco office vacancy remains north of 30%, a level that would have been unthinkable a decade ago. On paper, that still suggests a tenant’s market.
However, vacancy is a lagging indicator.
What’s shifting now isn’t the vacancy rate itself, but:
- Leasing velocity
- Net absorption trends
- The quality of space being absorbed
- Landlord behavior in negotiations
And those signals point in a different direction.
Leasing Activity Is Picking Up
Over the past several quarters, leasing activity has increased meaningfully. AI firms, technology companies, and professional services groups have signed new leases and expansions, particularly in higher-quality Class A buildings.
Net absorption has turned positive in multiple reporting periods, meaning more space is being occupied than vacated.
That may sound incremental, but in real estate cycles, directional change matters more than absolute numbers.
When demand begins to outpace new supply, even modestly, leverage shifts, and we’re starting to see exactly that.
Not All Vacancy Is Created Equal
A critical nuance: much of the remaining vacancy is concentrated in older, less competitive buildings.
Meanwhile, modern, amenity-rich Class A properties (especially those in desirable submarkets) are seeing stronger absorption and tightening availability.
This creates a bifurcated market:
- Commodity office space remains negotiable.
- High-quality space is becoming much more competitive.
Tenants targeting premier buildings are no longer the only ones at the negotiating table; they’re now competing with many other active tenants.
Asking Rents Are Rising
Over the last several quarters, asking rents in Class A assets have begun to push rates upward, particularly where availability has tightened ("view space", for example).
While effective rents (after concessions) still reflect discounts compared to peak pricing, the days of continuous downward pressure appear to be behind us in certain segments of the market.
For tenants evaluating a relocation or renewal, this is important:
Now that rental rates have recovered and tenant demand is steady, waiting to transact will no longer yield better economics for occupiers.
Concessions Are Compressing
Perhaps the clearest signal of shifting leverage is in concession packages.
During the peak of uncertainty, tenants were securing:
- Substantial free rent periods (at least 1 month free for every year of lease term)
- Significant tenant improvement (TI) allowances
- Flexible expansion and contraction rights
- Aggressive renewal options
Today, those concession packages are still strong by historical standards but they are no longer expanding.
In competitive Class A situations, we’re beginning to see:
- Slight reductions in free rent periods
- More disciplined TI budgets
- Landlords holding firmer on certain lease protections
This doesn’t mean leverage has flipped entirely but it does mean the window of maximum leverage is behind us for many Class A properties.
The Psychology of a Turning Market
Real estate markets often turn gradually... then suddenly.
The shift doesn’t begin when vacancy drops from 30% to 20%, it begins when:
- Landlords regain confidence
- Leasing pipelines strengthen
- Competing tenants re-enter the market
- Asking rents stabilize
Once those factors align, momentum builds which changes negotiating dynamics.
Tenants who assume “there’s still plenty of vacancy” may find that the specific buildings they want are no longer competing as aggressively for deals or the inventory is getting thin.
What This Means for Tenants
For growth-stage companies, nonprofits, AI firms, and professional services groups evaluating space decisions, the takeaway is straightforward:
The market is still favorable but it’s no longer deteriorating in tenants’ favor.
If you are:
- Within 18–24 months of lease expiration
- Considering a relocation
- Evaluating expansion
- Benchmarking your current deal
This is a strategic moment.
Not because the sky is falling.
But because the direction of leverage is beginning to change.
Should Tenants Rush?
No, but they should plan intelligently.
The best outcomes in shifting markets come from:
- Starting renewal or relocation analysis early
- Creating credible competition among landlords
- Targeting buildings where ownership has motivation
- Locking in favorable economics before compression accelerates
Waiting until six months before a lease expiration to “see where the market goes” is a bit like watching interest rates climb and hoping they’ll reverse next quarter.
Possible? Sure.
Strategic? Not usually.