The San Francisco office market continued its positive trajectory through the third quarter, with vacancy falling to 31.8%, a 0.5% quarter-over-quarter (QoQ) decreased and 1.3% year-over-year (YoY) decline. Availability also fell, declining 1.2% QoQ, to 35.6%, and 1.8% YoY. Average asking rents inched higher QoQ by $0.19 psf to $67.21 psf. Trophy assets now command a 49.2% premium over Class A assets. Net absorption is positive for the quarter at 367K SF, only the second positive absorption quarter since 2019, bringing the year-to-date (YTD) total to negative 35K SF.
Optimism is building as leasing activity accelerates downtown, supported by noticeably higher foot traffic, fuller offices, and busier streets. According to Placer.ai, office utilization posted double-digit increases in July and August, reinforcing the momentum seen in YTD leasing gains. Adding further momentum, the Federal Reserve lowered interest rates for the first time since December 2024 to a target range of 4.0%–4.25%, with additional cuts forecasted by year end, helping to ease borrowing costs. That said, vacancy is still near record highs, and a significant amount of space must be absorbed before a meaningful recovery can take hold.
Optimism is building as leasing activity accelerates downtown, supported by noticeably higher foot traffic, fuller offices, and busier streets. According to Placer.ai, office utilization posted double-digit increases in July and August, reinforcing the momentum seen in YTD leasing gains. Adding further momentum, the Federal Reserve lowered interest rates for the first time since December 2024 to a target range of 4.0%–4.25%, with additional cuts forecasted by year end, helping to ease borrowing costs. That said, vacancy is still near record highs, and a significant amount of space must be absorbed before a meaningful recovery can take hold.