The Bay Area’s Growing Commercial Real Estate Divide

The Bay Area commercial real estate market is no longer moving in one direction. Instead, it is splitting between assets that are benefiting from renewed leasing momentum and those that continue to slide under the weight of vacancy, deferred maintenance, and tightening capital.

On the office side, leasing activity has clearly picked up at the top of the market. In 2025, the Bay Area accounted for 14 of the largest office leases in the country, totaling roughly 4.3 million square feet. That activity was driven primarily by expansions rather than relocations, signaling that companies already committed to the region are choosing to grow in place rather than flee. Manhattan and the Bay Area were the only major U.S. markets to post meaningful year-over-year gains in leased office space, a notable data point given the broader national struggles in the sector.

Yet those gains sit alongside vacancy levels that remain historically high. San Francisco’s office vacancy rate hovers near 33%, with parts of the Peninsula not far behind. The contradiction is not as strange as it sounds. Demand is highly concentrated, flowing into a relatively narrow slice of newer, amenity-rich, well-located buildings, while older and less adaptable inventory continues to empty out. In practical terms, the market is not recovering evenly—it is sorting itself.

Much of the leasing activity has been fueled by companies expanding headcount tied to data, research, and Artificial Intelligence. Access to talent and capital continues to anchor these firms to the Bay Area, even as they remain selective about how and where employees work. The return-to-office push has also shifted priorities. Companies that once tolerated generic floor plates now want collaborative layouts, natural light, and proximity to transit and walkable amenities. As a result, view-oriented, Class A buildings are absorbing a disproportionate share of demand, and brokers in some submarkets report vacancy in top-tier properties approaching single digits.

A recent example is Anthropic’s decision to lease the entirety of 300 Howard Street in San Francisco, a 420,000-square-foot tower that had struggled to gain traction earlier in the cycle. Deals like this suggest that while the city’s office market is far from healthy, there is early evidence of a floor forming—at least for the right buildings. Across the region, Silicon Valley continues to lead in deal volume, with San Francisco following, and smaller but notable activity in the East Bay and Peninsula.

At the same time, this concentration of demand is leaving much of the region’s older office inventory behind. On the Peninsula, leasing has gravitated toward walkable downtown buildings near Caltrain stations, cafes, and housing. According to brokerage reports, high-end assets captured the majority of fourth-quarter leasing activity, while older suburban campuses and commodity office parks saw little relief. With new office construction largely stalled, this dynamic could eventually result in a shortage of premium space even as large blocks of obsolete inventory sit vacant.

Retail tells a different, but equally uneven, story. While neighborhood-serving retail and well-located centers have proven resilient, other properties are clearly under strain. The troubles at Blackhawk Plaza in Danville illustrate how quickly a once-dominant center can deteriorate when tenancy weakens and capital becomes constrained. Facing loan default, potential receivership, and multiple lawsuits alleging deferred maintenance and hazardous conditions, the plaza’s decline underscores the risks facing retail assets that rely heavily on discretionary spending and destination appeal—particularly those with challenging access or aging infrastructure.

That distress contrasts with healthier activity elsewhere in the region. In the North Bay, retail investment volume surged in 2025, reaching roughly $1 billion, a 75% year-over-year increase. About 2 million square feet of retail space traded hands, with pricing averaging around $500 per square foot. Home Depot’s $47 million acquisition of a 128,000-square-foot property in Santa Rosa reflects the continued strength of necessity-based retail and the willingness of large operators to own strategic locations outright. With retail vacancy in the North Bay below the national average and rents continuing to edge upward, investors appear more confident in this segment than in office.

Taken together, these trends point to a Bay Area commercial real estate market that is stabilizing in parts, deteriorating in others, and becoming increasingly polarized. Capital is flowing toward assets with clear long-term relevance—whether that is modern office buildings in transit-rich locations or retail properties anchored by essential uses. At the same time, properties that lack reinvestment, modern layouts, or strong fundamentals are facing mounting pressure, from declining occupancy to lender action.

For owners, tenants, and investors alike, the message is becoming harder to ignore. This is no longer a market where rising tides lift all boats. Success depends on asset quality, location, and adaptability, while failure is increasingly visible in court filings, receiverships, and empty storefronts. The Bay Area is still one of the country’s most important commercial real estate markets—but it is also one of the most unforgiving.