San Francisco, CA Industrial Market Report Q2 2026

The San Francisco industrial market recorded 693,000 square feet of positive net absorption during the second quarter, signaling improving tenant demand following a period of softer leasing activity. Vacancy increased to 12.5%, reflecting the cumulative impact of slower leasing over recent quarters and previously completed developments. Despite elevated vacancy, asking rents reached $29.65 per square foot, representing 1.0% annual rent growth. Landlords continue to benefit from the scarcity of modern industrial product in prime infill locations, helping preserve pricing power for high-quality assets. Leasing activity has become increasingly focused on tenants seeking efficient facilities that support last-mile distribution, advanced manufacturing, and specialized logistics operations. Older and functionally obsolete properties continue to experience longer marketing times and greater competitive pressure. Tenant demand remains healthy for strategically located assets with modern specifications, although users are negotiating more aggressively on concessions. Overall, the market appears to be transitioning toward greater equilibrium as improving absorption begins to offset elevated vacancy levels.

 

Key Findings

• Leasing momentum improved during the quarter, with positive net absorption indicating demand has begun to stabilize despite elevated vacancy.
• Asking rents continued to increase modestly, reflecting the resilience of well-located industrial assets, even as tenants maintain a cautious approach to expansion.
• Development activity remained limited, with no new deliveries in Q2 and a relatively modest construction pipeline, helping to constrain future supply growth.

 

San Francisco Industrial Supply & Demand Dynamics

Source: CoStar Group, Inc.

 

San Francisco Industrial Demographics

Source: Oxford Economics

• Unemployment Rate: 4.1%
• Current Population: 1,581, 971
• Households: 646,643
• Median Household Income: $154,839

 

San Francisco’s broader economic conditions across the Bay Area continue to influence the metro’s industrial market. While technology sector hiring remains selective, continued investment in artificial intelligence, life sciences, and advanced manufacturing is supporting long-term business activity. Population trends have stabilized following several years of outmigration, contributing to a more balanced regional economy. Consumer spending has remained resilient, supporting warehouse and distribution demand. Higher borrowing costs have moderated business investment, although expectations for improving capital market conditions have begun to support confidence. Overall, the regional economy continues to provide a stable foundation for industrial real estate demand, even as occupiers remain disciplined in their leasing decisions.

 

Top Industrial Leases in San Francisco

Source: CoStar Group, Inc.

• Kilroy Oyster Point (1): 304,500 SF
• San Carlos Research Center: 230,691 SF

 

Population, Labor Force, & Income Growth

Annualized Rates of Growth | Source: Oxford Economics

 

San Francisco Industrial Construction

Development activity subdued during the quarter, with no new industrial space delivered. Approximately 1.3 million square feet remains under construction, representing a relatively modest pipeline compared with previous expansion cycles. Higher construction costs, elevated financing expenses, and more conservative underwriting have significantly slowed the pace of new project starts. Developers continue to focus on build-to-suit opportunities and projects in locations with demonstrated tenant demand. Limited new supply should help prevent vacancy from increasing significantly over the coming quarters, as leasing momentum persists. Existing projects under construction are expected to deliver gradually, reducing the risk of a substantial supply shock. The constrained development environment also supports long-term rent stability by limiting competitive pressure from new inventory.

 

SF Construction Starts

Source: CoStar Group, Inc.

 

SF Under Construction

Source: CoStar Group, Inc.

 

San Francisco Industrial Sales

Investment activity totaled $89.4 million during the second quarter, reflecting continued selectivity among buyers and sellers. Industrial assets traded at an average price of $440 per square foot, while market cap rates averaged 5.9%. Investors continue to favor well-located assets with durable cash flows and strong tenant credit. Transaction volume remains below historical averages as many participants await greater clarity on interest rates and financing conditions. Pricing has generally stabilized following the repricing experienced over the past several quarters, although buyers remain disciplined in underwriting assumptions. Institutional capital continues to target high-quality industrial properties, particularly those offering long-term income stability. As financing conditions gradually improve, investment activity is expected to strengthen, though competition will likely remain concentrated among premium assets. Overall, San Francisco’s industrial sector continues to attract investor interest, owing to its supply constraints, strategic location, and long-term fundamentals.

 

Sales Volume

Source: CoStar Group, Inc.

 

By the Numbers

Q2 2026 | Source: CoStar Group, Inc.