Bay Area Office Vacancy Stays Above 30% in Three Major Downtowns

A split-screen recovery

By the usual measures, the Bay Area should be in an office comeback. OpenAI, Databricks and other AI companies are signing large leases. Apartments are hard to find, and the region's main office landlord says business has turned around. In the urban cores of San Jose, San Francisco and Oakland, though, much of the office space is still empty.

Cushman & Wakefield's first-quarter 2026 figures put downtown office vacancy at 30.8% in San Jose, 31.1% in San Francisco's central business district and 37.8% in downtown Oakland.22 Before the pandemic, at the end of 2019, the same three markets stood at 5.4% for San Francisco, 10.8% for Oakland and 12.8% for San Jose.21 The direction of travel differs. San Francisco is improving, San Jose has the lowest rate but is creeping up, and Oakland has the highest rate and keeps getting worse.22 Mark Ritchie, president of San Jose-based Ritchie Commercial, called the vacancy endemic. He noted that the one bright spot is that nobody is putting up new office towers, and he expects a return to pre-pandemic levels to take about five years.2123

The main lesson from the coverage is that AI demand is real but goes to particular places. It favors specific buildings and neighborhoods, and so far it has done little for the three downtowns.

Where the AI money is actually landing

The largest recent deals have mostly been outside the traditional downtowns. In February, OpenAI signed for 450,000 square feet in Mountain View. Databricks is putting together a 635,000-square-foot campus in Sunnyvale, where vacancy fell from 15.2% to 9.8% in a year, according to Colliers.28 Silicon Valley as a whole dropped to 14.1% vacancy in the second quarter, the lowest in the region. Sublease space there shrank to 1.3 million square feet, the smallest amount since 2016, partly because Google took back nearly 2 million square feet it had been offering to subtenants.28

Downtown San Jose sits right next to that activity and is still losing tenants to mixed-use districts such as Santana Row and Sunnyvale's Cityline.21 Federal Realty says its One Santana building is fully committed, with Etched, Securiti.ai, Couchbase and PwC among the tenants. AI firms Databricks and CrowdStrike also filled two new Cityline buildings.21 Robert Sammons of Cushman & Wakefield described San Jose as an "18/7" downtown, not a round-the-clock one.21 One possible turning point is Jay Paul Co.'s decision to offer its 971,000-square-foot tower at 200 Park Ave. one or two floors at a time, after holding out for a single tenant to take the whole building.21

In San Francisco, the recovery is uneven in a different way. JLL says trophy space with bay views now rents for about $140 a square foot, up 40% in a year, and only about 5% of it is vacant. The citywide average asking rent is around $66, and overall vacancy is still somewhere in the high 20s to low 30s.28 Demand is also stronger in neighborhoods near housing, such as Dogpatch and Potrero Hill, than in the Financial District. That runs against the pattern of earlier recoveries.28

The headline vacancy numbers also vary a lot depending on who is counting. CommercialCafe reported San Francisco at 26.7% in September, essentially flat from a year before and still the worst rate among major U.S. markets.30 Cushman's figure for the central business district is several points higher.22 Those gaps come from different definitions and boundaries. They do not mean the sources disagree about the trend. All of them describe a city that has come back from a peak of 33.8% in the third quarter of 2024 and still has a long way to go.24

Oakland is still waiting

Oakland is in the worst position, and the reporting agrees on that. Cushman found that AI growth has not produced office demand downtown. It also flagged that Kaiser, Clorox and Pandora, some of the area's biggest tenants, have leases expiring within roughly three years.26 The largest deal in early 2026 was the Emerson Collective's expansion of about 18,000 square feet, which is small for a downtown with this much empty space.26 JLL's numbers show downtown Oakland vacancy rising from 30.3% to 32.3% year over year.28

The forecasts depend on history repeating itself. Sammons says Oakland tends to follow San Francisco by about a year.21 JLL's Jacob Meyers points to the period after the 2008 crisis, when East Bay vacancy peaked 15 months after San Francisco's and full recovery came 21 months later.28 Some recent leasing suggests the timeline could hold. Premier Nutrition took 119,000 square feet in Emeryville, and MATS Research leased space in Berkeley.28 Both deals are outside downtown Oakland, which matches the broader pattern.

Distressed sales are resetting prices

The deals getting the most attention are often fire sales. In January, the debt on two Union Square-area buildings bought for $74.4 million in 2019 apparently sold at auction for $5 million.18 Bayhill Ventures bought 1128 Market St. out of foreclosure for $7.6 million, around $100 a square foot and close to an 85% discount from its pre-pandemic value.11 The loan on 45 Fremont was $347 million. Madison Capital bought that distressed debt for $238 million and took the building through a deed in lieu of foreclosure.16

The prices are starting to move up, though. Zurich bought back 410 Townsend St. for $47 million. That is still 45% below its pre-pandemic price but well above the $22 million it sold for in 2024.13 225 Bush St. was reappraised at $228 million, almost 50% higher than an earlier $153 million valuation.50 Kenson Ventures and Wheatley Properties had renovation crews at 417 Montgomery St. the day after closing, and they are courting AI tenants.12 New owners who buy cheaply can offer lower rents and still make money. Bayhill's chief executive made that point directly.11 Over the next few years, that could fill buildings faster than the original owners could.

Commercial real estate loans remain the pressure point

The debt side has not improved. Trepp's office CMBS delinquency rate reached a record 12.34% in January 2026.43 It was back at 12.2% in September, above the peak of the financial crisis, partly because of a $1.1 billion maturity default on a Hollywood portfolio co-owned by Hudson Pacific Properties.48 The $344 million loan on San Francisco's Embarcadero Center was among the transfers to special servicing in the first quarter.45 Bank balance sheets look much healthier by comparison. The Federal Reserve's measure of bank CRE loan delinquencies was 1.53% in the second quarter.49 Most of the stress is in securitized debt, not on bank books.

What the REITs reveal

Kilroy Realty's results show both sides of the market. The Bay Area accounts for about half of Kilroy's portfolio. Management told investors in September that San Francisco had gone from its weakest market to one of its strongest, with demand from AI, robotics, life sciences and traditional office users.31 Kilroy signed about 815,000 square feet of leases in the third quarter, among its biggest quarters since 2019, and rents on second-generation space rose 30.6% on a GAAP basis.33 But occupancy has not caught up. The stabilized portfolio was 76.9% occupied and 83.0% leased. Bay Area occupancy was down 1,040 basis points from a year earlier, and funds from operations per share fell to $0.88 from $1.08.34 The company is betting that tenants who have signed will move in.

Hudson Pacific is a more leveraged bet. It signed a 23-year, 502,000-square-foot lease with the City and County of San Francisco at 1455 Market St., the city's largest office lease since 2018.40 At the same time, its cash rents on new leases fell 11.4% in a recent quarter, and the company is not paying a dividend.32 In practice, a strong lease at one building does not guarantee rent growth across a portfolio.

Data centers face a different constraint

The AI boom has not produced a data center boom in the region either, but the obstacle here is electricity, not demand. Santa Clara has 56 data centers built or under construction. Its municipal utility, Silicon Valley Power, has not accepted new data center applications since 2023 because of capacity limits.55 Data centers use about 54% of the city's power, and a $450 million grid upgrade is not expected to be finished until 2030.57 Developers are working around the grid. ECL is building a 35-megawatt Santa Clara facility that will generate some of its own power from hydrogen and natural gas.53 San Francisco and Oakland have voted for temporary bans on new data centers.52 Investors still want the land. A Tishman Speyer affiliate paid $65.4 million for a Santa Clara site that already has data center approval.54

Apartments tell the opposite story

The housing market is moving the other way. CoStar found San Francisco asking rents up 14% between March and July, to an average of $3,864, which made the city the most expensive rental market in the country again.5 Realtor.com put September asking rents up 6.0% in San Jose and 4.8% in San Francisco, even though national rents had fallen year over year for 38 months in a row.3 Mayor Daniel Lurie declared a "rent emergency" and proposed a $30 million package to protect tenants.10

Rents are climbing while office vacancy stays above 30%, and the reason is that AI growth concentrates well-paid workers without requiring much more office space per worker. Housing supply in the city cannot keep up with that. Downtown office supply far exceeds it. Until the AI expansion produces several years of steady hiring, the Bay Area will have a housing shortage and a glut of downtown office space at once.