Market Updates

San Francisco Market Report Q1 2024


In the first quarter of 2024, the San Francisco multifamily market is continuing the steady improvement of the past three years. Over the longer term, the apartment market in San Francisco benefits from high single-family home and condo pricing and elevated mortgage rates. This creates a barrier to homeownership in the area and supports relatively strong demand for rentals.

As of the first quarter of 2024, the apartment vacancy rate in San Francisco stands at 5.9%, a slight decline from the previous quarter. This is the lowest vacancy rate since the first quarter of 2020 and is a continuation of a trend of positive net absorption that has been a characteristic of the market’s slow recovery following the pandemic. 

Annual net absorption, at 2,300 units, is just over half the annual average that the market has seen during its recovery over the past three years. With very low levels of new deliveries, the lower absorption over the past year reflects a cyclical weakness in demand. Renter interest has softened as a result of the prevailing economic conditions, such as continuing tech layoffs and high interest rates. 

Domestic out-migration between 2018 and 2022 resulted in a population loss of around 90,000 people for the San Francisco market, according to estimates from the California Department of Finance. However, the most recent release shows a small increase in population from 2022-23. A continuation of this reversal will support stronger demand growth in the quarters ahead.


The volume of new apartment completions in San Francisco has slowed. As of the first quarter, just 860 units delivered over the past year. This compares to the five-year average of 2,100 units per year and is the lowest annual total since 2012. However, the pace of new construction starts has picked up in the past six months, and approximately 2,000 units are projected to be completed in both 2024 and 2025. In total, there are 4,600 units currently underway, which is only a little below the five-year average of 4,700 units. The under-construction stock measures 2.6% of existing inventory, well below the average rate of 4.6% across the nation. Most of the market-rate units under construction are in 4 & 5 Star buildings.

Much of the current construction pipeline is located to the south of San Francisco. Spurred by growth in life sciences and biotechnology, new projects are clustered in Peninsula employment markets such as South San Francisco, San Mateo, and Redwood City, which have emerged as popular locations for transit oriented development around Caltrain stations. Of the 2,500 units set to be delivered in 2024, around 1,900 are located in these areas, with just 600 being delivered in the city of San Francisco, including Treasure Island.

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In the first quarter of 2024, San Francisco continues to see rising vacancy rates as office tenants give back more space than they lease. In 2023, San Francisco almost equaled the annual record of 10 million SF of negative net absorption set in 2021 during the dotcom bust. But while the dotcom bust lasted only one year, 2023 is the fourth year of negative demand in the current downturn and brings the total amount of negative net absorption since the start of the pandemic to 23.2 million SF.



Leasing conditions remain subdued in the first quarter. As measured by Kastle Data Systems key card activity, office attendance in downtown San Francisco has increased slightly in January but was generally flat for much of 2023, at around 45% of pre-pandemic levels. Like other U.S. cities, office usage peaks midweek and falls on Mondays and Fridays, suggesting wide acceptance of hybrid working patterns. The midweek peak is around 55% of the 2019 benchmark. 

The overall vacancy rate for the San Francisco Market increased to 21.7% in the first quarter and is forecast to rise further. Annual net absorption was negative by -8.2 million SF and, with 11.9 million SF of sublease space available, the availability rate has increased to 26.1%. Two-thirds of available sublet space is vacant. By comparison, the national availability rate currently stands at 16.7%.

Tenants continue to sign new leases in downtown San Francisco, but the number of transactions and the average lease size are notably lower than pre-pandemic averages. Renewals often include a reduction in space, although the amount varies. Beyond downtown San Francisco (across San Mateo County and South San Francisco), the office market is in better health.


Office construction activity in San Francisco remains subdued, with developers reluctant to commence projects while demand for existing spaces remains weak. Most development projects that are currently underway target the life science subsector, focusing mainly on San Mateo County. Several approved developments have been delayed due to canceled commitments and unforeseen economic challenges.

About 790,000 SF of new office space completed during the past 12 months. Major completions include Building B at Mission Rock in Mission Bay, a 311,000-SF life science building available for lease. As of Q1 2024 there was about 1,700,000 SF under construction.

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In the first quarter of 2024, the San Francisco industrial market is seeing a continuation of the trends that characterized 2023, with low levels of leasing, vacancy rising and moderate rent growth. However, the two main industrial market segments are on different tracks. The flex market has been weakened by falling demand and historically high levels of new supply, while the logistics segment has remained generally stable.



The slowdown in leasing activity that began more than a year ago is still shaping activity in the first quarter of 2024. Total industrial leasing volume in 2023 was the second lowest of the past 10 years, with only the pandemic year of 2020 coming in lower. 

The leasing slowdown has come about as higher interest rates and economic uncertainty reduced demand for industrial space. Moreover, the demand from biotech companies for R&D space has diminished as venture capital funding dried up. Coming at a time that coincides with a spike in the delivery of newly constructed flex R&D space, the result has been a sharp increase in vacancy for that segment of the industrial market. 

Flex vacancy increased by 6.2% in the past year and stands at 18.1% in the first quarter. By comparison, logistics space vacancy remains close to its long-term average at 6.3%. Overall market vacancy ticked up to its current rate of 10.0%.


San Francisco’s industrial market is seeing a historically high level of development, with around 1.0 million SF delivered in the past year and 5.3 million SF of space currently under construction. These projects are all flex buildings that are predominantly aimed at providing R&D space for the life science/biotech industry. This sector has seen high levels of growth and occupier demand in recent years. However, in the past 18 months, tenants have reigned in their expansion plans after interest rate hikes curbed funding for biotech businesses. 

The geographic focus for new flex space is South San Francisco. However, new construction is dispersed throughout the metro area, with sizable projects also taking shape in the southern part of Downtown San Francisco and several Peninsula employment centers, including Millbrae, San Carlos, Belmont, and Redwood City.

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In the first quarter of 2024, the San Francisco retail sector is looking back on a difficult year, during which its overall operating performance was held back by population loss and the deterioration of Union Square and the neighboring areas downtown. Better performance has been achieved in the smaller urban retail precincts that characterize much of the denser parts of the city. The eclectic mixes of eateries and independent boutiques in these retail zones are generally active and vibrant. Further, retail performance has been more stable in the outer parts of San Francisco and in San Mateo County, with both vacancy and rent growth generally flat over the past year.


As of the first quarter of 2024, San Francisco continues to see growing vacancy, with local centers and suburban locations faring better than downtown. Much of San Francisco is characterized by freestanding retailing along popular urban strips in heavily populated neighborhoods that comprise eclectic mixes of eateries and independent boutiques. In contrast to the current situation in downtown and Union Square, these retail zones are generally active and vibrant, with a healthy influx of new stores and restaurants.

Another positive point for downtown is the continued presence of a critical mass of high-end fashion retailers, centered on Grant Street and Post Street. These designer boutiques have maintained, and in some cases expanded, their presence in recent years despite the drop in overseas tourism, which provides a large share of their income.


As of the first quarter, construction activity in San Francisco is at a historically low level. The construction pipeline consists of a small number of mixed-use redevelopment projects and a single Safeway store, with a total volume of 200,000 SF underway. This compares to the five-year average of 380,000 SF.

Several unfavorable supply and demand trends have quashed retail construction activity in San Francisco. For many years, a lack of developable sites and restrictive planning policies have limited the volume of new retail development. More recently, population decline has reduced demand and diminished the viability of new retail projects. Moreover, in the past year, the persistence of high interest rates has raised the cost of construction financing, thereby presenting an additional challenge to the feasibility of retail developments.

Redevelopment of brownfield sites is an additional source of new retail space; however, these projects tend to focus on other uses, such as apartments and offices, with a smaller ancillary retail component. 

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*Source: CoStar


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