REAL ESTATE NEWS

San Francisco’s multifamily market is seeing its strongest demand growth in four years, according to CoStar.

Annual net absorption reached 4,200 units, one of the highest figures in the past decade. The pace of leasing has outstripped new supply, pushing the vacancy rate down to 4.5%, its lowest level since 2014.

This runs contrary to CoStar’s recent national forecast update for the US multifamily sector, reflecting a more cautious outlook for rent growth and vacancy trends through 2026.

National apartment rent growth is now projected to decline by 0.1% in the fourth quarter of 2025, a downward revision of 160 basis points from the previous forecast. Vacancy is expected to hold at 8.2% through year-end before easing to 7.9% by the end of 2026.

In San Francisco, local property managers attribute the surge there to renewed population growth, expansion by AI-focused companies, the extension of return-to-office policies and successful efforts to address crime and homelessness in downtown neighborhoods.

“This rise in apartment demand is closely tied to the rapid growth of the AI sector overall,” Nigel Hughes, senior director of market analytics, CoStar, told GlobeSt.com.

“Over the past two years, tech startups have attracted billions in investment, leading them to expand their office footprints and grow their teams.”

After several years of population declining, San Francisco’s demographics have stabilized, with a modest increase in residents expected this year, Hughes added.

“Apartment owners note that this stabilization has played a significant role in boosting demand for rental housing,” he said.

“Overseas immigration is driving this population growth. Domestic outward migration has slowed, although it is still negative, as people leave San Francisco in search of lower living costs.”

The highest rents are found in Downtown San Francisco, Mission Bay and South of Market areas, which saw substantial luxury development in the 2010s and are now central to the recent surge in AI company office leasing and recruitment. Leasing managers report strong interest from tech workers relocating to these neighborhoods and competition for limited apartments is driving rents higher.

Also, neighborhoods previously facing significant challenges are now rebounding, including Downtown San Francisco, South of Market, Haight-Ashbury/Castro/Noe Valley and Civic Center/Tenderloin, according to CoStar.

CoStar’s national revised forecast reflects a more measured view of near-term performance, according to the company.

In the final quarter of 2025, renters nationally are expected to occupy more units than are added to supply — a first since the third quarter of 2021. That shift should allow vacancy to continue receding in 2026, supported by a shrinking construction pipeline and steady renter demand.”

Source: GlobeSt/ALM