San Francisco Office Market Edges Toward a New Cycle

• Office by the bay: A new planned office tower, the biggest on the west coast, is a sign of the turnaround of San Francisco’s office market.

• Mile high electricity: Colorado has pushed its decarbonization initiative further by implementing new rules for building electrification.

• Converted: Conversions are tightening Manhattan’s office market, fueling the strongest leasing since 2019 and making the city’s best buildings more valuable.

Editor’s Pick

San Francisco Office Market Edges Toward a New Cycle

San Francisco’s office market is showing real signs of life. The city is making headlines as Hines has announced plans to build a 1,225-foot-tall office tower at the site of PG&E’s former headquarters on Beale Street. The building would be the tallest on the West Coast and just 25 feet shy of the Empire State Building.

It’s not Hines’s first attempt at such an audacious project. Back in April 2022, only months after unveiling plans for a 1,066-foot residential tower at 50 Main Street, the Texas developer was told by city planners that its design clashed with the Transit Center District Plan. That 2012 blueprint locked in Salesforce Tower, at 1,070 feet, as the high point of the city’s skyline. The proposal was effectively shot down before it could get traction. This time around, however, Hines is pitching its tallest-ever San Francisco project to a very different city—one that is actively searching for signs of revival.

The mood from City Hall suggests the reception could be warmer. Mayor Daniel Lurie celebrated the proposal across his social media accounts, telling the Business Times that San Francisco’s comeback “depends on bold ideas and real investment,” calling the tower “exactly the kind of progress our city needs.” Planning Director Sarah Dennis Phillips echoed that sentiment, describing the plan as “an incredible vote of confidence” in downtown and the long-term future of the city’s office market.

The raw numbers also tell the story of a market in recovery. Tenants leased more than 5 million square feet in the first half of 2025, putting activity on pace for its strongest year since before the pandemic. Much of that demand is being driven by artificial intelligence companies, which have quickly become one of the city’s largest sources of leasing. Avison Young reported that leasing volume in the second quarter hit 2.7 million square feet, the highest quarterly total since late 2019 and more than 60 percent higher than the same period last year. JLL echoed that strength, noting that year-to-date leasing is up more than 40 percent compared to 2024, a clear sign that tenants are willing to make commitments again.

Still, the hole left by the pandemic is far from filled. Vacancies remain stubbornly high, hovering above 22 percent by CBRE’s measure, and in some submarkets availability is closer to 30 percent. Net absorption also remains uneven, with gains from new leases offset by downsizing and move-outs in older buildings. The progress is notable but the city is still far from its pre-2020 norm, when vacancies were in the single digits.

What makes this turnaround important is that it shows momentum is finally moving in the right direction. Instead of the steady negative absorption that defined the last three years, new commitments are starting to outpace givebacks. Landlords are still offering significant concessions, but the balance of power is shifting ever so slightly back toward owners of well-located, high-quality properties.

The comeback is far from complete, yet the city’s office market is no longer in freefall. If leasing volumes continue at their current pace, San Francisco could finish the year with its best absorption in half a decade. For a city that became the poster child of empty downtowns, Hines’s bold new proposal—backed by city leaders and arriving alongside real leasing momentum—may mark not just a rebound, but the beginning of a new cycle driven by the industries choosing to grow there.

Overheard

Residential Conversions Give Manhattan’s Office Market New Life

Manhattan office leasing is having its best year since 2019, with more than 20 million square feet signed in the first half alone and activity on pace to hit 40 million by year end. Vacancy is starting to ease and sublet space is shrinking, but landlords are still leaning heavily on concessions to get deals done, showing that the recovery has momentum but not without some propping up.

A big part of the story is that New York is quietly taking obsolete office space out of circulation. Conversions to housing and other uses have stripped millions of square feet from the market, with more than 15 million square feet in the pipeline that could bring over 17,000 new apartments. The city’s tax incentives are making these conversions pencil, and the results are starting to show up in the leasing numbers.

What makes this shift so important is that it proves conversions can move the needle even in markets as massive as Manhattan. By tightening supply, they are making the best office space more valuable and giving tenants more reasons to consolidate into higher quality buildings. That dynamic could reshape the city’s office landscape as much as any single megaproject or new tower rising on the skyline.

Colorado Elevates Efficiency Requirements with Tiered, Electric-First Code

Colorado has finalized a new energy-efficient building code that will become law in September 2025 and must be adopted by local governments starting in 2026. The rules push new homes toward electrification with requirements for heat pumps, EV charging readiness, and solar provisions, while tying compliance to performance-based energy credits.

This move builds on the state’s earlier efficiency mandates, like the 2022 law requiring jurisdictions to adopt the 2021 IECC plus electric- and solar-ready standards, and the benchmarking rules for large buildings that targeted steep carbon reductions by 2030. Those programs have faced delays and pushback, with cities like Denver extending compliance deadlines and easing penalties to give owners more breathing room.

The new code shows Colorado’s determination to keep raising the bar, even if rollout has been uneven. By making electrification the default, the state is reshaping both construction economics and long-term operating costs, signaling to builders and investors that carbon-heavy projects will have a harder time finding a future in Colorado’s regulatory landscape.

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