Is San Francisco Real Estate Making a Shocking Comeback? Discover What Investors Know NOW!

For nearly five years, the outlook for San Francisco's real estate market was dreary. The pandemic emptied downtown of office workers and tourists, causing property values to plummet and shaking the local economy. Streets that once bustled with life faced increased challenges, with the San Francisco Centre Mall sitting as a stark reminder of the changing landscape—vacant and forlorn on Market Street.

However, the landscape is beginning to shift. In 2025, office vacancies started to decline for the first time since before the pandemic, buoyed by optimism around an AI boom and enthusiastic support from Mayor Daniel Lurie. National investors are once again registering interest in local buildings, and commercial tenants are returning, competing for prime office space. Developers are also gearing up to build anew, suggesting a transformative period for the city's commercial real estate is on the horizon.

Key trends are driving this resurgence in San Francisco's commercial real estate market:

The Return of Institutional Investors

When real estate magnate Gregg Flynn sought to purchase property in the city during 2023 and 2024, the investment landscape looked stark. He often found himself negotiating alone or with local partners. Yet, everything changed when he began exploring the two-skyscraper Market Center, located at 555-575 Market St. Early in 2025, he received a call from a New York investment firm eager to partner on the deal—a sign of shifting perceptions. Flynn ultimately secured a deal to purchase the remaining loan on Market Center for $177 million, marking a 76% discount from its previous purchase price in 2019. This strategic acquisition allows Flynn's group to invest in necessary upgrades and renovations, targeting a recovering office market.

Flynn's experience mirrors a broader trend. In mid-2025, global investment firm Blackstone made a significant move by partnering with local firm DivcoWest to acquire an empty office building at 300 Howard St. for $111.3 million. Initially puzzling due to the high vacancy rates in the area, the acquisition proved prescient when AI startup Anthropic began leasing nearby. By the end of the year, sources indicated that Anthropic was considering occupying Blackstone's entire new property.

Other investment activities included New York Life Real Estate and Lincoln Properties, which collectively spent over $110 million on separate office buildings. Additionally, the New York State Teachers Retirement System regained control of 525 Market St., a property purchased for top dollar in 2020. These transactions underscore a renewed optimism in San Francisco's office market, as evidenced by the completion of 26 office sales in 2025 totaling $2.3 billion.

“In my opinion, 2025 will be looked back upon as the most important year in San Francisco’s office market recovery,” stated Kyle Kovac, executive vice president of CBRE’s Capital Markets Team. “It marked the return of institutional investors and tenant demand reaching pre-pandemic levels.”

The Power of AI

The AI boom is a significant factor energizing the San Francisco real estate market. In 2024, Sierra Technologies, an AI startup founded by Bret Taylor, signed a lease for a 41,000-square-foot office at 235 2nd St. By February, the company agreed to double its office space, further emphasizing the sector's rapid growth. This trend extends beyond Sierra; Cushman & Wakefield reported that more office space was leased than vacated in 2025, marking the first positive change since 2019. The current office vacancy rate of approximately 34% is expected to be the market's bottom before a rebound.

Neighborhoods such as Mission Bay, where OpenAI is headquartered, are experiencing low vacancy rates—below 9%. Other areas, including Showplace Square and SoMa, are also witnessing renewed activity. Almost half of the leases over 50,000 square feet this year came from companies growing or expanding, a rise from 33% the previous year, with many stemming from AI firms. However, the question remains: will there be enough employees to occupy the rapidly expanding office spaces?

Despite the enthusiasm, current trends indicate a decline in white-collar office jobs across the city due to cost-cutting measures and technological advancements. Unlike past tech booms, which saw startups blossoming into major employers, the current AI industry is largely funded by established Big Tech companies, raising concerns about talent concentration.

Even with a third of offices remaining unoccupied, increased tenant demand is spurring speculative development. Developers believe new office spaces will outperform older, outdated buildings. In 2025, global developers proposed new projects, including Houston-based Hines aiming for a new tallest skyscraper at 77 Beale St. and New York-based Related Companies eyeing a 41-story building at 530 Sansome St.

Additionally, the stalled Oceanwide Center development at 512 Mission St. is in revival, as local developer Dan Kingsley purchased its debt. The city is incentivizing development through a rollback of fees and affordable housing requirements, while state laws allow certain developers to bypass local authorities, facilitating projects that may exceed community preferences.

In conclusion, while challenges remain—such as high construction costs and financing difficulties—the landscape of San Francisco's commercial real estate is shifting. The tailwinds behind the city’s real estate might soon see cranes dotting the skyline once more, signaling a potential revival for a city that has faced unprecedented hurdles in recent years.