San Francisco continues to hold its position as the West Coast’s most expensive office market with asking rents averaging $66.93 per square foot — just behind Manhattan — according to the latest CommercialEdge national office report.

Despite these high rents, the city faces well-documented challenges. As of August, San Francisco’s office vacancy rate stood at 27.6%, which is slightly lower than Austin’s 27.8%, thereby ending Austin’s status as the U.S. leader in office vacancies. Additionally, throughout the last year, the vacancy rate surged by 540 basis points in San Francisco, far outpacing the national average of 19.4%, which increased by 200 points year-over-year. Major tenant departures — such as X (formerly Twitter), which vacated 458,000 square feet at 1355 Market St. earlier this month — have added to the city’s growing inventory of available office space.

However, office construction deliveries in the first half of 2024 added 1.7 million square feet to mark a 182% increase compared to the first six months of 2023 and position San Francisco among the top markets for office growth. One notable project is Boston Properties’ 651 Gateway Blvd., a 327,000-square-foot life sciences building that reopened in March. The 16-story redevelopment transformed a 1986-completed property in South San Francisco.

In terms of ongoing construction, San Francisco remains a significant player in national office development with 4.71 million square feet currently under construction to rank third behind Boston and Dallas.

While overall market conditions are challenging, selective leasing activity — driven primarily by tech companies — has remained strong. In particular, AI-focused firms are fueling demand. According to the San Francisco Chronicle, OpenAI recently signed the city’s largest lease of the year after securing 350,000 square feet at 550 Terry A. Francois Blvd. to bring its total footprint in the city to nearly 1 million square feet.

Despite these developments, San Francisco remains a tenant’s market: Total office sales volume through August reached approximately $256 million, placing the city 20th nationally. At the same time, not all tech companies are expanding. Google, for instance, opted not to renew its 300,000-square-foot lease at One Market Plaza. With X relocating to Austin and major lease renewals like Google’s on the horizon, the city’s office market remains in a delicate balance between new demand and rising vacancies.

Adding to these challenges, office-using employment has dropped across the board in San Francisco in the last year. In fact, the office report showed that information jobs declined by 1.49%, financial activities by 0.79%, and professional and business services by 0.11%.