SF’s economy is booming. Renters are feeling it first
A new city report says AI investment is driving San Francisco’s comeback. But the data shows rents outpacing job growth outside health care and tourism. And a broker, a city economist and a housing advocate don’t agree on what that means.
San Francisco’s economy is on the upswing. Office leasing is up, and rents are climbing faster than almost ever before. Meanwhile, by city officials’ own admission, it’s a place where fewer people can afford to live. The latest economic snapshot from the city controller’s office, released Monday, credits the turnaround largely to San Francisco’s AI investment boom — the same rebound Mayor Daniel Luriedescribed to The Standardlast week as reshaping his governing agenda. Asking rents for empty apartments grew 14% between March and July. Home prices are climbing at double-digit annual rates even as prices fall statewide. And while office vacancy dropped by 3. 7 percentage points over the past year, job growth outside healthcare and tourism has been modest at best. “It’s likely that AI investment is indirectly driving most of the private-sector growth,” San Francisco’s chief economist Ted Egan said. “Tech employment growth is more muted because AI is eliminating jobs as well as adding jobs. ”It’s a version of what Egan told The Standard last month: “Our rents are growing much faster than in other places, and AI is the big reason for that. ”Notably, he no longer lives in San Francisco. Big leases, broad footprintSan Francisco’s office vacancy rate has fallen from a pandemic-era high above 35% to just above 30%. It’s still elevated but moving in the right direction for the first time in years. Alexander Quinn, senior director of economic research at commercial real estate services firmJLL(opens in new tab), said the AI-driven leasing wave looks different depending on how you measure it. “The bulk — the bigger leases — account for the larger share in square footage, but the number is quite broad-based,” he said. There were just two leases by AI companies in the city in 2020. By early last year, that figure had climbed to 167. Egan cautioned against reading too much into the vacancy number; pre-pandemic levels aren’t the right benchmark anymore, he said. Instead, one should look at the “natural vacancy rate,” where rent growth tracks inflation. By that measure, roughly 10% of the city’s office supply is out of competitive use. AI'soffice footprint, by the numbersHow AI companies reshaped San Francisco's office marketAI office leases2→1672020 to early 2025AI office footprint2. 6M→4. 8MSquare feet, 2022 to 2024Office vacancy rate35%+→~30%Pandemic-era peak to todaySource: JLLAsking vs. payingEgan attributes the spike to AI-linked in-migration and constrained supply, though he cautioned that the city’s most recent in-migration data dates only to 2024. Quintin Mecke, executive director of the Council of Community Housing Organizations, argues that the 14% figure itself deserves scrutiny. “A 14% move in listing prices tells you what landlords believe they can get from the next tenant, not what sitting tenants are paying — yet,” he said. “That gap is exactly where displacement happens. ”Egan confirmed the distinction, saying ApartmentList tracks recent movers and new leases, not the broader, often rent-controlled base of sitting tenants. In 2024, the U. S. Census Bureau’s median contract rent in SF was $2,348, while ApartmentList’s estimate ran about 15% higher — a gap that widens during boom times, he said. That gap matters because of who falls on either side of it. Most San Francisco tenants, protected by rent control, don’t feel a 14% jump directly. But anyone forced to sign a new lease — through eviction, owner move-in, job relocation, or the end of a fixed-term contract — pays the new number. A widening gap means the cost of being displaced is rising quickly, even as the market average appears calm. In other words, a 14% jump in asking rents says little about what most renters pay but a great deal about what anyone signing a new lease will face. Janan New, executive director of the San Francisco Apartment Association, confirmed that asking-rent jumps affect new leases and turnovers, not sitting tenants, and said the industry is still recovering from pandemic-era vacancy losses in larger buildings. “We always under-billed,” she said. “And then every time we have a boom in the economy in San Francisco, of course, the rents go up. ”The permits problemRents are up; housing permits are not. Egan attributes that disconnect to a supply-response lag. Mecke sees something more structural. “Rents respond to a demand shock in months,” he said. “Housing takes years from entitlement to occupancy. There is no supply response fast enough to meet a rent spike. ”That lands at a pointed moment. City Hall has spent the past year cutting inclusionary housing requirements and impact fees on the theory that lower costs would unlock construction and is weighing a further cut tied to a November ballot measure expanding the city’sHousing Trust Fund(opens in new tab). Lurie spokesperson Shelby Weiss pointed to the administration’s broader push, citing the Family Zoning Plan and a new permitting platform. “We are starting to see projects move forward,” she said, “and we must and we will keep going. ”New, whose association has backed reducing inclusionary and impact-fee requirements, said the bigger issue isn’t the fee structure but the price of building. “The cost of construction is just skyrocketing; I don’t know if that has to do with tariffs, labor, or something else,” she said. “You combine that with high interest rates, and it’s not actually a good time for developers. ”Mecke’s deeper concern is that rising rents raise the price of the buildings themselves — pricing out the nonprofit buyers who rely on San Francisco’sCommunity Opportunity to Purchase Act(opens in new tab), which gives them first right of refusal to buy small, tenant-occupied buildings before they hit the open market, keeping them permanently affordable. “Every building we lose in this window,” he said, “is one we have to build from scratch later, at several times the cost. ”Meanwhile, the unemployment rate sits at 3. 7% and keeps trending downward — but that’s carried by healthcare and tourism, not tech. Kim Tavaglione, executive director of the San Francisco Labor Council, has warned about restaurant, hotel, and construction workers being priced out of the city they serve, telling The Standard there is “nowhere for them to go. ”‘Gold rushes, over and over’There’s more than one way to read the numbers. Quinn and Mecke, working from the same data, arrive at strikingly different places. “San Francisco is just a series of booms and busts, so we have to expect that,” Quinn said. “We’re a series of gold rushes, over and over again. ”To Quinn, that’s a sign of resilience: The city has weathered these cycles before and come out the other side. Mecke sees it differently. “Displacement is a ratchet, not a pendulum,” he said. Residents priced out in past booms didn’t return when the market softened — people with more money took their place. New has seen this cycle before. “I’ve been in my job for a long time,” she said. “And this is like the fourth time we’ve done this same story. I was working in ’99 during the dot-com boom. We had the same situation back then. ”She added that rising costs elsewhere — utilities, groceries, even a cuppa joe — are squeezing owners as much as tenants. “The trouble we have now,” she said, “is that the cost of everything is so high. ”Lurie, for his part, has touted efforts to recruit universities and diversify the city’s economic base. “It cannot be one industry,” he told The Standard last week. Whether that ambition can keep pace with what’s happening in the rental market may be the more immediate question. The city’s own numbers show it hasn’t.