INSIGHT

San Francisco Commercial Real Estate: What the Return of Market Momentum Means

Mark Leverette • December 18, 2025

Industries: Real Estate

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The conversation around San Francisco commercial real estate has shifted. After years of headlines focused on vacancy rates and remote work challenges, something fundamental is changing in the Bay Area market—and the implications for property owners, investors, and developers are significant. 

At our recent 2025 Year-End Real Estate Forum – led by BPM’s Real Estate Leader, Mark Leverette – we gathered some of the most influential voices shaping San Francisco’s real estate landscape: brokers navigating deal flow, attorneys structuring transactions, developers planning new projects, and financial leaders managing complex portfolios. The consensus was clear – San Francisco is experiencing a tangible resurgence, driven by economic stabilization, political leadership, and the transformative impact of artificial intelligence on the region’s commercial landscape. 

If you’re making decisions about Bay Area real estate investments, lease commitments, or portfolio strategy, understanding these dynamics is essential to positioning your assets for the opportunities ahead. 

The K-Shaped Recovery and What It Means for Commercial Property 

Chief Economist Paul Single from City National Bank opened the forum with an unflinching look at the current economic environment. His central theme? We’re in the midst of a K-shaped recovery—where different sectors and asset classes are experiencing dramatically different trajectories. 

For commercial real estate, this creates both challenges and opportunities: 

• Top performers: Properties tied to growth sectors like technology and AI are seeing renewed demand and stabilizing valuations 
• Lagging assets: Traditional office spaces not aligned with modern workplace needs continue facing pressure 
• The divide matters: Your property’s position in this recovery depends heavily on tenant mix, location, and adaptability to new market demands 

This divergence means blanket strategies no longer work. Your approach to one property in your portfolio may need to differ significantly from another, even within the same market.  Adding that rock climbing wall, or upgrading the roof to a garden retreat, may be just the answer in some cases.  

Federal Reserve Policy: One Vote Isn’t Everything 

Single offered a particularly valuable reminder for anyone making long-term real estate investment decisions: “Eyes on the Fed Chair… but remember, they’re only one vote.” 

While Federal Reserve policy on inflation and interest rates remains influential, the commercial real estate market is increasingly driven by local fundamentals—employment trends, sector growth, and regional competitive advantages. For San Francisco specifically, these local drivers are proving more powerful than national monetary policy in shaping market direction. 

The takeaway? Don’t let macro uncertainty paralyze your local market strategy. The Bay Area has unique catalysts driving demand that transcend broader economic headwinds. 

Forces Behind San Francisco’s Commercial Real Estate Momentum 

Leadership Stability Creates Investment Confidence 

Political stability matters to commercial real estate markets. The election of Mayor Daniel Lurie has brought renewed focus and consistent leadership to San Francisco’s economic development agenda. For property owners and investors, this translates to: 

• More predictable regulatory environments for development and repositioning projects 
• Coordinated efforts to address street-level conditions that impact property values 
• Strategic initiatives supporting business retention and attraction 

When investors feel confident about a city’s direction, capital follows. We’re seeing this play out in deal flow, tenant expansion discussions, and developer interest in projects that were shelved during more uncertain times. 

The AI Sector: San Francisco’s Commercial Real Estate Catalyst 

Perhaps no single factor is reshaping the Bay Area commercial real estate landscape more dramatically than artificial intelligence. The region’s position as the global epicenter of AI development is creating ripple effects across property markets: 

Office demand is evolving: AI companies need different spaces than traditional tech tenants—more collaborative environments, specialized infrastructure for computing needs, and proximity to the innovation ecosystem 

Competition for prime locations: As AI firms expand rapidly, they’re driving renewed interest in Class A office space in key corridors, particularly in South of Market and parts of downtown San Francisco 

Supporting ecosystem growth: The AI boom is attracting talent, which drives residential demand, which supports retail and hospitality—creating a virtuous cycle for mixed-use developments 

If your portfolio includes Bay Area commercial properties, understanding how AI growth affects your specific assets should be part of your strategic planning conversations. 

The Office Market’s Tangible Resurgence 

The forum participants—people actively working deals and tracking leasing activity—reported something that doesn’t always show up in quarterly statistics: genuine momentum in San Francisco’s office market. 

This doesn’t mean the market has returned to 2019 dynamics. Rather, we’re seeing: 

• Tenant tours increasing for well-positioned, amenitized properties 
• Companies making decisions they’d been delaying, particularly those in growth sectors 
• A flight to quality, where premium spaces are outperforming significantly 
• Renewed interest in flexible lease structures that give tenants growth options 

For property owners, this creates a clear strategic imperative: Assets need to be positioned for the market that’s emerging, not the one we left behind. 

Strategic Considerations for Your Commercial Real Estate Portfolio 

What Market Optimism Means for Your Investment Decisions 

The San Francisco market’s recovery isn’t uniform, and your strategy shouldn’t be either. Consider these actionable perspectives: 

• If you’re an office landlord: The properties attracting interest share common characteristics—modern systems, amenity-rich environments, strong building management, and locations connected to where talent wants to be. Investing in repositioning or amenity upgrades may unlock significantly more value than waiting for market conditions to improve on their own. 
• If you’re evaluating acquisitions: The K-shaped recovery creates opportunities to acquire assets that can be repositioned for growth sectors. Properties that seem challenged in traditional office uses might be perfectly suited for AI companies, life sciences tenants, or mixed-use conversion. 
• If you’re planning development: The combination of political stability, sector growth, and returning market confidence creates a more favorable environment for breaking ground on projects—but success will depend on reading the specific tenant demand signals correctly. 
• If you’re managing a portfolio: Tax strategy becomes even more important in a recovering market. Understanding how to structure asset sales, leverage 1031 exchanges, or optimize holding structures can significantly impact your after-tax returns as property values stabilize and potentially appreciate. 

The Community Factor: Why Energy and Collaboration Matter 

One of the most interesting observations from our forum wasn’t about cap rates or leasing velocity—it was about something less quantifiable but equally important: energy. 

Multiple participants noted that collaboration and optimism are returning to the San Francisco real estate community. Brokers are more active. Developers are having productive conversations with lenders. Property owners are engaging in strategic planning rather than crisis management. 

This matters because commercial real estate is ultimately a relationship-driven business. When the ecosystem is functioning well—when information flows freely, when partnerships form naturally, when there’s collective belief in the market’s direction—deals happen, challenges get solved, and opportunities get realized. 

Positioning for What’s Next 

San Francisco’s commercial real estate market is evolving into something different from what came before. The forces driving this transformation (AI sector growth, political stability, and renewed economic fundamentals) are creating opportunities for property owners and investors. 

As we move through 2025, the Bay Area commercial real estate market will continue to reward those who position their assets thoughtfully, understand sector-specific demand drivers, and structure their holdings for both tax efficiency and operational excellence. 

Ready to discuss how these San Francisco market trends affect your commercial real estate strategy? BPM’s real estate advisory team works with property owners, investors, and developers to navigate complex market transitions, optimize portfolio performance, and structure transactions that align with your long-term objectives. Contact us to start a conversation about your Bay Area commercial real estate holdings.