For years, San Francisco has been the cautionary tale of the post-pandemic city — a boomtown turned ghost town, the epicenter of what economists started calling an urban doom loop.
When the tech exodus began and downtown towers emptied out, the city’s troubles metastasized: a hollowed-out workforce, shuttered storefronts, rising visible homelessness, and viral crime headlines,
By 2023, the city that once minted the world’s most valuable startups had become shorthand for what happens when innovation meets inertia.
Office vacancy topped 30%, population loss hit 8%, and property owners watched tower valuations drop by as much as 70%. The ripple effects were brutal: less foot traffic meant less retail activity, less tax revenue meant fewer city services, and fewer city services meant — you guessed it — even fewer tenants willing to come back downtown.
But after three years of decline, the numbers are finally tilting in the other direction. The question now isn’t whether San Francisco is still in freefall. It’s whether it has reached escape velocity.
Signs of Life in a Stalled Market
For the first time in years, there are genuine signals of momentum. The city’s office market (once written off as unfixable) is showing measurable improvement.
Tenants leased more than 5 million square feet in the first half of 2025, setting the stage for San Francisco’s strongest leasing year since before the pandemic.
The second quarter alone saw 2.7 million square feet of activity, the most since late 2019 and more than 60% higher year-over-year. Year-to-date leasing is up 40% compared to 2024.
A huge share of that volume comes from a single industry: artificial intelligence.
AI: The Unexpected Hero of Downtown San Francisco
Just when it seemed the tech exodus was irreversible, a new breed of companies began moving in. Artificial intelligence firms, flush with venture capital and global attention, are now the city’s fastest-growing office tenants.
- Vercel, a web-development platform recently valued at $3.5 billion, leased 42,150 square feet at 201 Mission Street, backfilling space vacated by Indeed.
- OpenAI signed for nearly 800,000 square feet of Uber’s former offices and is reportedly hunting for another 300,000.
- Harvey AI took 92,000 square feet at 201 Third Street.
- Motive grabbed a portion of Twitter’s old headquarters in Mid-Market.
Collectively, AI companies now occupy more than 5 million square feet of office space in San Francisco. CBRE estimates that figure could exceed 21 million square feet within five years — enough to cut the city’s current 23% vacancy rate nearly in half.
This surge has had real statistical impact: sublease availability, once among the highest in the nation, has fallen 30% in two years. For the first time since 2019, the city’s overall office vacancy ticked downward.
In a market starved for good news, these moves are evidence that leasing demand, however narrow, is returning.
A Towering Vote of Confidence
Perhaps no signal is bolder than what developer Hines is planning on Beale Street. The Texas-based giant recently unveiled designs for a 1,225-foot-tall office tower on the site of PG&E’s former headquarters — a building that would surpass every structure on the West Coast and stand just 25 feet shorter than the Empire State Building.
It’s not Hines’s first attempt at remaking the skyline. A 2022 proposal for a 1,066-foot residential tower at 50 Main Street was blocked by planners adhering to the city’s 2012 Transit Center District Plan, which effectively set Salesforce Tower’s 1,070-foot height as the limit. But this time, the city’s tone is markedly different.
Mayor Daniel Lurie praised the proposal as “exactly the kind of progress our city needs,” calling it a sign that San Francisco’s comeback “depends on bold ideas and real investment.” Planning Director Sarah Dennis Phillips described the project as “an incredible vote of confidence” in downtown’s future.
Symbolism matters in commercial real estate. A skyline once defined by cranes and ambition has been stuck in stasis for half a decade. If Hines’s proposal gains traction, it won’t just add square footage — it will mark a psychological turning point.
Momentum with an Asterisk
Optimism, however, doesn’t erase math. The hole left by the pandemic is deep.
Vacancies remain above 22%, and in some submarkets — particularly South of Market and the Financial District fringe — availability still approaches 30%.
Net absorption remains uneven: the space AI firms are filling often comes from other tenants giving space back. Class B and C buildings, in particular, continue to struggle as tenants favor newer, amenity-rich environments.
Landlords are still writing large concession checks. Free rent periods of 12 to 18 months and tenant-improvement allowances exceeding $100 per square foot are not uncommon for quality space. And while leasing volume is up, capital markets are still sluggish. High interest rates have frozen many transactions and forced lenders to revalue assets at steep discounts.
In other words, San Francisco’s office recovery isn’t broad — it’s bifurcated. Trophy towers and AI-anchored buildings are gaining traction, while older inventory languishes.
Still, even selective momentum beats the negative absorption that defined 2022 and 2023. The market’s trajectory, for the first time in years, is pointing up instead of down.
A City Searching for Its Second Act
San Francisco’s real challenge may be less about leasing and more about reinvention. Remote work permanently altered the demand curve for urban office space. The city’s pre-pandemic peak (when vacancy rates hovered near 5%) is unlikely to return. Instead, the next chapter will depend on how successfully the city retools itself for hybrid work and diversified use.
That process is already visible.
Older office buildings are being evaluated for residential conversions, though high construction costs and zoning hurdles make progress slow. The city is courting life-sciences tenants, though competition from South San Francisco and the Peninsula remains fierce.
Meanwhile, the AI boom has restored some of the city’s reputation as a magnet for innovation. For local landlords, that matters. Unlike social media or fintech firms that once decamped to Austin or Miami, AI companies depend heavily on in-person collaboration, research infrastructure, and proximity to elite talent — advantages that still favor the Bay Area.
This could give San Francisco a unique edge in the next economic cycle: a concentration of high-value industries that still see physical presence as essential.
Why San Francisco’s Comeback Matters Nationally
Whether San Francisco succeeds or fails will ripple far beyond California. For institutional investors and urban policymakers alike, the city has become a stress test for the modern downtown.
If San Francisco — with its wealth, tech talent, and global brand — can’t revive its core, what hope do second-tier metros have? Conversely, if it can engineer a rebound, the playbook could inform strategies in places like Chicago, Seattle, and Portland, which face similar dynamics of remote work, urban disorder, and fiscal strain.
There’s also a psychological component. Over the past three years, San Francisco became shorthand for the “death of downtown.” A visible turnaround here would challenge that narrative, encouraging capital back into urban cores and providing political cover for other mayors to push pro-growth policies.
The city’s leadership seems aware of the stakes. Mayor Lurie’s administration is emphasizing economic recovery as civic identity, pairing business-friendly rhetoric with investments in safety, cleanliness, and infrastructure. Those steps are modest but meaningful — and they’ve been enough to draw cautious optimism from developers like Hines and investors who once wrote the city off.
The National Lens: CRE at a Crossroads
From a broader commercial real-estate perspective, San Francisco’s recovery attempts intersect with two national trends.
First, the “higher for longer” interest-rate environment has redefined valuation models across every asset class. Investors once spoiled by cheap capital are now forced to underwrite with discipline — and they’re rediscovering the value of markets that can still generate leasing momentum. If San Francisco’s fundamentals continue to stabilize, it could attract contrarian capital hunting for distress-to-recovery upside.
Second, the re-urbanization of innovation is back in focus. The same forces that once decentralized tech — remote tools, distributed teams, digital collaboration — are now bumping against productivity limits. AI development, in particular, thrives on dense networks of talent, hardware, and intellectual cross-pollination. That’s the kind of ecosystem only a handful of cities can deliver, and San Francisco is still one of them.
A Measured Hope
The comeback, then, isn’t guaranteed, but it’s plausible.
San Francisco will likely end 2025 with its best absorption in half a decade, and while vacancies remain elevated, the direction of travel is finally positive. The market is far from healed, but it’s no longer hemorrhaging.
The irony is that the same forces that nearly broke the city — technology, remote work, and inflated expectations — might also be what saves it. If AI becomes the defining economic engine of the next decade, San Francisco’s mix of talent, capital, and cultural gravity positions it to lead once again.
That doesn’t mean the doom loop has been vanquished. It means the feedback loop might finally be turning positive.
The Last Word
San Francisco’s office market may never look like it did in 2019, and that’s probably fine. The city’s value was never in square footage alone; it was in the concentration of ideas that filled those floors. If those ideas are returning even slowly the real estate will follow.
If any city can debug an urban system failure, it’s San Francisco. The only question now is whether it can keep the program running long enough to finish the reboot.
