San Francisco Office Strengthens With Tech Demand Topping All Markets
Office demand in San Francisco has strengthened notably, with tenant requirements reaching their highest level since 2019 and leasing activity standing out in both tech and AI-driven sectors, according to a Cushman & Wakefield report.
San Francisco's vacancy rate declined to 30.1%, improving 120 basis points from Q1 and 360 basis points year-over-year as both direct and sublease vacancies tightened.
Leasing momentum was strong, supported by 276 active tenant requirements totaling 8.6 million square feet, with tech accounting for more than half of all demand.
Net absorption exceeded 1 million square feet during Q2 and reached nearly 2.2 million square feet over the trailing 12-month period, reflecting sustained occupancy improvement.
Asking rents also trended upward, rising to $70.31 per square foot, while investment activity remained active with numerous properties under contract heading into the second half of the year.
San Francisco Second To Only NYC
Additional reports reinforce this momentum. The Q2 VTS Office Index revealed that San Francisco remained the nation's second-strongest office market overall behind New York City.
San Francisco's trailing 12-month tech demand is up 161% year-over-year, the largest gain of any market, according to VTS.
"We continue to see NY and SF continue to compete for the top spot," Rene Moreira, senior research manager of VTS, told GlobeSt.com.
"We expect Tech demand to continue to expand in these core talent markets, even if it's not at the aggressive pace it has achieved in the last 12 months."
Absorption At Strongest Pace Since 2018
In Kidder Mathews' report, it noted that San Francisco recorded 3.6 million square feet of leasing in Q2 and 830,000 square feet of net absorption, bringing year-to-date absorption to 1.7 million square feet, the strongest pace since 2018.
Vacancy fell to 27.2%, down sharply from its 2024 peak, while sublease inventory tightened to just 14.3% of total availability. Over the trailing 12 months, absorption and leasing activity have consistently improved, driven largely by AI-sector expansions and increased utilization of existing space.
Softer Demand Conditions In LA
Los Angeles, by contrast, continued to face sluggish demand conditions in Q2 2026, according to Cushman & Wakefield.
Vacancy remained elevated at 23.4%, rising slightly quarter-over-quarter, while net absorption totaled negative 372,185 square feet, contributing to a trailing 12-month pattern of persistent occupancy losses.
Leasing activity reached 2.1 million square feet in Q2, down both on a quarterly and year-over-year basis, with renewal activity particularly weak.
Sublease availability held at 6.2 million square feet, though it remains down significantly from its 2024 peak, suggesting gradual improvement in shadow supply.
Overall, office-using employment sectors such as professional services and information continued to contract year-over-year, limiting demand recovery.
Alternatively, the VTS Index reported that Los Angeles continued to gain momentum, up 17% year-over-year through creative, professional services and legal tenants rather than technology.
Source: GlobeSt/ALM