Positive Trends in Office Leasing

Recent developments in San Francisco’s commercial real estate landscape signal a resurgence, particularly with the signing of leases by artificial intelligence firms and a notable improvement in the city’s return-to-office (RTO) statistics.

According to data from Placer.ai, February 2025 marked a critical turning point as San Francisco registered a 47.5% decline in office visits compared to pre-pandemic February 2019 figures, outperforming Chicago, which experienced a decline of 48.5%. This shift represents a change in the city’s trend, historically noted for lagging behind major urban centers in RTO metrics.

City Leadership’s Encouragement

Mayor Daniel Luire expressed optimism regarding the recovery, stating, “There are green shoots everywhere in San Francisco, and these numbers are an early indication that we are moving in the right direction.” The Mayor has instituted a directive requiring city employees to be in-office four days a week, effective April 28, reinforcing his administration’s commitment to restoring downtown vibrancy.

Leasing Activity and Demand

Data from CBRE reveals that San Francisco saw 2.2 million square feet of office space leased in the first quarter of 2025, a commendable increase of 50% compared to the same period the previous year. Although this figure slightly trails the fourth quarter of 2024, the leasing momentum indicates a potential to surpass eight million square feet for the entirety of 2024.

With approximately five million square feet required by companies in the first quarter of 2025, demand remains robust, particularly from the burgeoning AI sector. Notably, 30 AI firms have expressed a collective interest in securing around one million square feet of office space.

New AI Tenants at 501 Second Street

In a significant development, The Swig Company has secured leases with two AI firms at 501 Second Street this spring. LangChain, recognized for its open-source framework facilitating large language models, is leasing 11,800 square feet. Meanwhile, unitQ, specializing in AI-driven product quality monitoring, will take 7,500 square feet. Blake Walker and Caroline O’Loughlin Livermore from CBRE facilitated LangChain’s lease, emphasizing that the furnished space would streamline their transition and enhance team morale.

Cory Kristoff, director of leasing for Swig, expressed enthusiasm about supporting “two San Francisco-based enterprises advancing the application of artificial intelligence in business,” underlining the evolving nature of the city’s commercial real estate market.

Challenges in the Residential Sector

While the commercial sector shows promise, challenges persist in San Francisco’s residential market. Parkmerced, the city’s largest apartment complex, has entered receivership due to financial distress after its owner, Maximus Real Estate Partners, defaulted on nearly $1.8 billion in loans. Douglas Wilson Companies has been appointed as the receiver for the expansive 3,221-unit complex located near San Francisco State University, with plans to safeguard and reposition the property.

Transformative Plans for Downtown San Jose

In related developments, Jay Paul Company is revising its CityView project plans in downtown San Jose. The updated proposal will focus on converting office spaces into residential units, while also integrating retail and community facilities. Originally proposed as three connected office towers, the new design reflects shifting market demands, acknowledging that multifamily housing is currently more lucrative than older office models.

Mayor Matt Mahan hailed the project, describing it as a significant opportunity for reimagining San Jose’s landscape in the context of advancing technology.