San Francisco Office Vacancies Diverge as Leasing Surges and Stalls

San Francisco’s office sector is splitting in two. Mercor’s lease of Lila Sciences’ upper floors at 181 Fremont has driven trophy view vacancy to 0.5%, while Bay Area tech giants are driving a 28% jump in market value through renewed leasing activity. In stark contrast, Mid-Market’s retail and hospitality corridor remains distressed, with a $500,000 pilot betting on arts tenants to revive storefronts as submarket vacancy sits at 32%. The divergence underscores a flight to quality and location, leaving secondary assets exposed. Multifamily, meanwhile, is defined by affordable housing momentum. MidPen’s 82-unit complex in Redwood City’s Inner Harbor and Brookfield and Pacific West’s 119-unit first phase in Fremont on a former Wells Fargo campus signal institutional capital’s continued pivot to workforce housing. Apartment Investment and Management’s Q3 2026 earnings date looms as a bellwether for sector resilience. Hospitality’s international expansion is evident in Sunday PropTech’s 89-room hotel acquisition in Kolkata, while local efforts in San Francisco focus on adaptive reuse. Capital markets remain selective. Vander Capital Partners’ acquisition of the 51,000 square foot Google-leased 40 Jessie lab building, backed by a $20.45 million Valley Bank loan, highlights lender appetite for creditworthy, tech-anchored assets in core locations. In contrast, the broader office market faces a reckoning as higher rates challenge underwriting, with the refrain that “the math doesn’t work” echoing across the sector. La Salle County’s commercial property sales and the leasing of 27,000 square feet by MBZUAI’s Institute of Foundation Models in Sunnyvale’s Peery Park round out a day defined by capital seeking safety in scale and tenancy.

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