Growth of the artificial intelligence (AI) industry, along with more workers returning to the office, has begun to lower office vacancy rates across the San Francisco and Silicon Valley region. Net absorption was firmly positive in the first half of 2025 as more workers returned to the office, reinvigorating workplace vibrancy and spurring retail store openings.
The city of San Francisco has benefited the most with rising demand and falling supply. AI-related companies have received more than $100 billion in venture capital funding since 2024 and now occupy 6.3 million square feet of office space.
AI-related-demand has revitalized areas including San Francisco’s Financial District and Mission Bay, where rising office occupancy is boosting demand for daytime services from restaurants and retailers.
Despite downtown San Francisco’s 35 percent overall office vacancy rate, much of this space does not meet the needs of tenants currently in the market. Many occupiers only consider high-quality buildings in prime locations with modern, move-in-ready space that does not require costly, time-consuming tenant improvements.
The vacancy rate for space in trophy buildings stood at just 14 percent as of midyear 2025, while prime buildings had a 25 percent rate and non-prime buildings a 43 percent rate. Similarly, average rent for space in trophy buildings is 7 percent above pre-pandemic levels, while that for non-prime buildings is 20 percent below.
The San Francisco Bay area is also a major life sciences hub, supported by Stanford University and the University of California, San Francisco. As AI begins to transform the health care sector, life sciences companies are well-positioned to tap into the Bay Area’s large tech talent workforce.
As companies scale and seek collaborative environments, demand for high-quality office and research and development space is expected to remain strong, particularly in urban centers that offer proximity to talent, infrastructure, and institutional capital. Housing demand will also grow as new high-paying jobs are created.
Looking ahead, the Bay Area is set to lead the next wave of innovation and offers unique property investment opportunities. AI and other advanced technologies are applicable across industries and the region’s unique blend of talent, capital, and institutional strength will drive sustained economic growth and real estate demand.
—CBRE
