San Francisco’s multifamily market demonstrated impressive strength in Q3 2025, driven by accelerating demand and a persistent shortage of new supply. Vacancy fell to 4.4%, the lowest level since 2014 and an improvement from the previous quarter, as absorption continued to outpace deliveries. These tighter conditions supported significant rent momentum, with asking rents climbing 6.1% year-over-year to an average of $3,300 per unit, reversing the softness seen in 2023 and underscoring renewed renter competition. Demand was fueled by population growth, the expansion of AI-related employment, and heightened interest across all asset classes. With only 178 units delivered, 2,000 under construction, and 937 absorbed, supply remains limited, sustaining upward pressure on fundamentals as the market heads into 2026.

 

Key Findings

• Strong demand, driven by population stabilization, AI-sector expansion, and limited new supply, has pushed vacancy down to 4.4%, its lowest in a decade. Concurrently, rents surged 6.1% YoY to an average of $3,300 per unit, the highest growth rate nationally.
• Investor confidence remains strong, with $514 million in quarterly sales volume, supported by sustained rent growth potential and constrained development.
• Development remains limited, with only 178 units delivered this quarter and 2,000 units under construction, well below historical averages.

 

San Francisco Multifamily Supply & Demand Dynamics

Source: CoStar Group, Inc.

 

San Francisco Demographics

Source: CoStar Group, Inc.

• Unemployment Rate: 3.8%
• Current Population: 1,591,149
• Households: 662,025
• Median Household Income: $151,456

 

San Francisco’s economy is entering a new growth phase driven by a surge in AI investment, positioning the region for another potential tech boom. Major companies and startups are expanding operations, leasing office space, and hiring talent to meet rising demand for AI applications across industries. Historically a global hub for innovation, the Bay Area’s strong economic growth and high incomes have also contributed to elevated housing costs and real estate prices. After a pandemic-era downturn marked by population declines, remote work shifts, and rising unemployment, recent signs point to renewed momentum, with the population growing 1.3% and increased business activity downtown. This AI-fueled expansion is already boosting demand for housing, accelerating rent growth, and strengthening the broader economic outlook.

 

Major Tech Companies in San Francisco

Source: CoStar Group, Inc.

• Apple
• Meta
• NVIDIA
• Alphabet

 

Population, Labor Force, & Income Growth

Source: CoStar Group, Inc.

 

San Francisco Multifamily Construction

Construction activity remained constrained despite strong underlying demand, reflecting broader market headwinds and shifting development dynamics. Only 178 units were delivered during the quarter, while 2,000 units remained under construction. The pipeline is well below historical averages and unable to keep pace with robust absorption of 937 units. Elevated construction costs, limited access to financing, and post-pandemic caution have slowed the pace of new project starts, even as developers advance projects through planning in anticipation of continued rent growth. Much of the recent activity is concentrated in premium, transit-oriented developments, underscoring a focus on high-demand submarkets. This persistent imbalance between new supply and renter demand is expected to keep vacancies tight and support further rent gains heading into 2026.

 

Units Construction Starts

Source: CoStar Group, Inc.

 

Units Under Construction

Source: CoStar Group, Inc.

 

San Francisco Multifamily Sales

Investment activity remained solid with quarterly sales volume totaling $514 million and properties trading at an average of $528,000 per unit. Cap rates held steady at 4.6%, reflecting stable pricing amid elevated borrowing costs and tight market conditions. Institutional buyers continued to play a significant role, drawn by low vacancy and strong rent growth, which support long-term income potential. A notable institutional sale is Arc Light, a Class A 94-unit adaptive reuse community in Mission Bay, acquired by Tidewater Capital from PGIM in July 2025 for $37.8 million. Demand remained robust and improving market sentiment suggests continued investment activity heading into 2026 as fundamentals and rent performance remain attractive.

 

San Francisco Multifamily Sales Volume

Source: CoStar Group, Inc.

 

By the Numbers

Source: CoStar Group, Inc.

• Sales Volume: $188M
• Price Per Unit: $184K
• Cap Rate: 5.7%
• Vacancy Rate: 11.8%
• Rent Growth: (1.4%)
• Asking Rent Per Unit: $1.5K
• Under Construction: 30K Units
• Delivered: 7.1K Units
• Absorbed: 8.3K Units