Peninsula Office Vacancy Hits 10-Year High
Vacancy in the Peninsula office market has climbed to its highest point in a decade, reflecting continued softness in demand across the tech corridor from South San Francisco to Menlo Park.
According to CBRE, office vacancy reached 24.6% in Q2 2025, more than double what it was five years ago. The number excludes lab and R&D space, which have also experienced rising vacancies. While the market once stood as a reliable stronghold for tech and life sciences, it now faces a prolonged reset.
What’s notable is that rates haven’t adjusted downward in line with demand. Average direct asking rents rose to $6.54 per square foot, a slight increase from Q1. CBRE’s Steffen Kammerer pointed out that mid-Peninsula pricing hasn’t seen the same corrections as San Francisco, adding, “Space isn’t flying off the shelf.”
The shift highlights the reversal of early pandemic trends. Suburban markets like the Peninsula initially outperformed dense urban cores. But with San Francisco recording three straight quarters of occupancy gains, the dynamic appears to be changing.
AI and Robotics: The Bright Spot
While many areas on the Peninsula saw negative absorption last quarter — notably Burlingame and Menlo Park, which accounted for nearly 101,000 square feet of net move-outs — AI and robotics companies are showing signs of meaningful activity.
One example is Skild AI, an Nvidia-backed robotics startup valued at $4.5 billion, which leased 32,500 SF in the former Roblox HQ. According to JLL, robotics leasing in the Bay Area has surged by 750% since 2021, jumping from 280,000 to 2.4 million square feet. These tenants often seek hybrid spaces that blend office, lab, and light manufacturing functionality.
This type of demand is increasingly concentrated in trophy assets with strong amenity packages. A recent example: Qualys Inc. renewed its 77,000 SF lease at Metro Center in Foster City—an amenity-rich location surrounded by hotels, restaurants, and national retailers.
While broader tech leasing remains subdued, early momentum from AI and robotics could help stabilize the Peninsula over time—especially in high-quality, move-in-ready buildings.
Source: San Francisco Business Times
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