S
an Francisco's office vacancy rate continues to rise, but experts say the city's commercial landscape is marked by significant neighborhood-by-neighborhood differences in desirability. "Most tenants want to be where the action is," says Dina Gouveia of Avison Young, noting that activity has shifted towards certain submarkets, making them the new hotspots.

    Mission Bay is a prime example, attracting big-name AI tenants and sparking interest from other tech companies. The area's revitalization efforts have paid off, with OpenAI's relocation generating excitement and drawing in companies like Y Combinator. Visa's new headquarters at Mission Rock has further boosted interest in the area.

    In contrast, smaller tenants in traditional office industries are clustering in the North and South Financial Districts, as well as Jackson Square and the North Waterfront. These areas offer favorable perceptions of safety, amenities, and high-quality availability that can accommodate smaller tenants. Colliers data shows office vacancy rates at 35.4% citywide, but Jackson Square and Mission Bay have lower rates of 22.3% and 24.9%, respectively.

    Other neighborhoods are also gaining traction, such as the Presidio, which has been a high-performing market due to its unique creative workspace and serene park setting. As AI startups mature and need more space, they're expanding into new areas like Showplace Square and the North Financial District.

    Avison Young's Office Busyness Index shows that fringe submarkets have experienced significant improvements in office activity year-over-year, with Potrero Hill seeing a 27.6% increase due to an influx of AI companies. The North Financial District remains the strongest performing submarket post-COVID.

    On the other hand, submarkets south of Market Street continue to struggle, particularly around Civic Center and Yerba Buena. Colliers data shows high vacancy rates in these areas, with 38.5% in Mid-Market/Civic Center and 62.4% in Yerba Buena. The lack of retail and large-block vacancies contribute to these neighborhoods' low standing among office tenants.

    Experts say it will take public and private partnerships to improve safety and create more activity in areas like Mid-Market, which was already dealing with significant vacancy before Elon Musk's X shut down its headquarters this summer. However, they also note that a few key tenants could pivot the market with new activity.