San Francisco, CA Retail Market Report Q2 2026

San Francisco retail continued to show signs of stabilization during the second quarter of 2026. Market vacancy stood at 5.3%, while the market recorded approximately 307,000 square feet of positive net absorption over the past year. Average asking rents measured $44.22 per square foot, with rents increasing by 0.7% year over year, reflecting continued tenant leverage in lease negotiations. Neighborhood shopping centers, grocery-anchored centers, and service-oriented retail continue to outperform downtown retail corridors, benefiting from stable consumer traffic and essential retail demand. Demand remains strongest among experiential retailers, fitness operators, specialty grocers, and value-oriented concepts, while large-format fashion retailers remain cautious. Limited availability of quality neighborhood retail space has helped support leasing momentum outside the urban core. Overall, improving absorption combined with constrained new supply suggests market fundamentals should continue to strengthen gradually through the remainder of the year.

 

Key Findings

• Retail fundamentals continue to stabilize as positive absorption and limited new construction gradually improve market balance, though performance remains uneven across submarkets.
• Downtown locations are under pressure from elevated vacancy and slower office recovery, while neighborhood-serving and suburban retail corridors continue to outperform.
• Investment activity remains selective, with capital favoring grocery-anchored and experience-oriented assets despite a higher interest rate environment.

 

San Francisco Retail Supply & Demand Dynamics

Source: CoStar Group, Inc.

 

San Francisco Demographics

Source: Oxford Economics

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

 

San Francisco’s economy continues to navigate a gradual recovery supported by its globally competitive technology, healthcare, and professional services sectors. Artificial intelligence investment has emerged as a meaningful driver of employment and capital formation, helping offset broader weakness across traditional office-using industries. Population growth has returned to positive territory, although the pace remains modest following several years of outmigration. Household incomes remain among the highest in the nation, providing a strong consumer spending base that supports retail demand despite persistent affordability challenges. Neighborhood commercial districts have benefited from more stable residential activity and hybrid work patterns.

 

Top Retail Leases in San Francisco

Source: CoStar Group, Inc.

• Hotel Zelos & 801 Market: 55,568 SF
• 265 Eddy St/168 Turk St: 52,500 SF

 

Population, Labor Force, & Income Growth

Annualized Rates of Growth | Source: Oxford Economics

 

San Francisco Retail Construction

Approximately 72,500 square feet of retail space has been delivered over the past year, while only 122,000 square feet remains under construction, representing a very small addition to existing inventory. Nearly all projects currently underway are fully preleased, minimizing the risk of speculative supply entering the market. Current development activity is concentrated primarily in suburban submarkets and mixed-use environments rather than traditional urban retail corridors. Developers continue to prioritize neighborhood-serving retail, fitness, grocery, and experiential concepts over large-format retail formats. The constrained development pipeline should continue supporting occupancy levels and limit future competitive supply once leasing demand strengthens further.

 

SF Construction Starts

Source: CoStar Group, Inc.

 

SF Under Construction

Source: CoStar Group, Inc.

 

San Francisco Retail Sales

Investors balanced improving leasing fundamentals against higher capital costs, resulting in measured investment activity. Sales volume totaled approximately $234 million during the quarter, while assets traded at an average price of $528 per square foot. Market cap rates averaged 5.4%, reflecting continued pricing adjustments in response to the higher interest rate environment. Investors remain highly selective, with the strongest demand focused on grocery-anchored centers, mixed-use properties, and well-located neighborhood retail assets offering stable cash flow. Downtown assets continue to experience greater pricing pressure due to elevated vacancy and uncertain leasing timelines. Private investors remain active participants, while institutional capital has concentrated primarily on high-quality, income-producing assets. Although transaction volume remains below historical peaks, improving market fundamentals and a limited construction pipeline are supporting investor confidence. Continued stabilization in leasing activity and greater certainty surrounding interest rates should encourage additional investment activity over the coming quarters.

 

Sales Volume

Source: CoStar Group, Inc.

 

 

By the Numbers

Q2 2026 | Source: CoStar Group, Inc.

• Sales Volume: $231M
• Price Per SF: $527
• Cap Rate: 5.4%
• Vacancy Rate: 5.3%
• Rent Growth: 0.7%
• Asking Rent Per SF: $44.22
• Under Construction: 122K SF
• SF Delivered: 72.5K
• SF Absorbed: 307K