San Francisco’s industrial sector has experienced mixed performance throughout 2025, marked by fluctuating leasing activity and persistent demand weakness. Absorption was negative in the first half of the year, but then rose to 434,621 square feet absorbed in Q3 2025. Yet, both the flex and logistics segments continue to face challenges from rising interest rates and reduced tenant expansion.
The flex sector, which makes up about 30% of industrial space, has seen higher vacancies amid increased construction and softer biotech demand. In contrast, logistics vacancies have doubled since 2022 to 8.5%, due to tenant moveouts. Overall, the industrial vacancy rate reached 12.9% in Q3 2025. Rent growth remained flat at $29.00 per square foot, and market stabilization is not expected until late 2026.
Key Findings
- Leasing activity rose in Q3 2025 to 434,621 square feet, the only quarter in 2025 to record positive absorption levels.
- New construction is concentrated in South San Francisco and the Peninsula. About 60% of space underway is speculative, while over half of new flex additions remain vacant.
- The average sale price reached $455 per square foot as most sales involve smaller and older logistics properties.
San Francisco Industrial Supply & Demand Dynamics
Source: CoStar Group, Inc.
San Francisco Demographics
Source: CoStar Group, Inc.
- Unemployment Rate: 3.9%
- Current Population: 1,590,835
- Households: 658,614
- Median Household Income: $153,586
After several residents left the metro during COVID-19, San Francisco is beginning to show signs of renewal. The metro is becoming an innovation hub as AI firms lease office space and hire staff to develop applications in high demand across industries. While total employment remains below pre-pandemic levels and unemployment has edged up to 3.9%, renewed demand for workspace and housing suggests that the metro’s economy may be entering a new phase of growth, fueled by technological innovation and the expanding AI sector.
Top Tenant Leases
Source: CoStar Group, Inc.
- DoorDash
- Metro Slopes LLC
- Beumer
- Keller Industries
Population, Labor Force, & Income Growth
Source: CoStar Group, Inc.
San Francisco Industrial Construction
Industrial construction has decreased throughout the year, with the pipeline decreasing from over 5 million square feet in 2023 to 1.8 million square feet underway in Q3 2025. Most recent development has centered on flex buildings for life sciences and biotech tenants; however, rising interest rates have reduced investment and dampened demand. As a result, about 5.8 million square feet remains vacant, with 60% of ongoing projects still available for lease. Construction is concentrated in South San Francisco and Peninsula cities like Millbrae and Redwood City. Developers are also increasingly converting underused office properties into laboratory and R&D spaces to adapt to shifting market conditions.
Units Construction Starts
Source: CoStar Group, Inc.
Units Under Construction
Source: CoStar Group, Inc.
San Francisco Industrial Sales
Industrial sales across San Francisco remain muted, reflecting the broader slowdown in tenant demand and high borrowing costs. Transaction activity has fallen well below the decade average, with Q3 2025 sales totaling about $119 million. Investors remain cautious as rising interest rates have suppressed pricing and returns, pushing institutional buyers to the sidelines. Over the past year, sales volume reached roughly $500 million, still far below the 2021–2022 peak of over $1.5 billion annually. Most deals involved smaller, older logistics or specialized buildings priced around $350 per square foot, with private buyers and owner-users dominating activity.
San Francisco Industrial Sales Volume
Source: CoStar Group, Inc.
By the Numbers
Q3 2025 | Source: CoStar Group, Inc.
- Sales Volume: $119M
- Price Per SF: $455
- Cap Rate: 5.8%
- Vacancy Rate: 12.9%
- Rent Growth: 0.6%
- Asking Rent Per SF: $28.62
- Under Construction: 1.8M SF
- Delivered: 416K SF
- Absorbed: 435K SF
