Peninsula CRE Panelists Declare Market Turning Point as Leasing Activity Doubles and Life Science Sector Stabilizes

At the ACREM “State of the Peninsula” breakfast, commercial real estate leaders described surging tenant demand, rising return-to-office momentum, and the first signs of life science recovery across the San Francisco Bay Area.

The San Francisco Peninsula’s commercial real estate market has entered a new phase of recovery, with tenant demand more than doubling over the past six months and the life science sector posting its first positive absorption in roughly two years, according to a panel of industry leaders speaking at the Association for CRE Managers’ “State of the Peninsula” breakfast on March 3 at Angelica’s in Redwood City.

The panel, moderated by Vickie Banti, executive director of Bay Area Builders, featured Bryte Bellotti, managing director at JLL; Peter Conte, national director at Transwestern; and Trask Leonard, president and CEO of Bayside Realty Partners. In a wide-ranging discussion spanning office, life science, and medical office sectors, the panelists painted a picture of a market emerging from a prolonged downturn with cautious but growing optimism.

Leasing Activity Surges Across the Peninsula

Bellotti offered some of the morning’s most striking data points, describing an acceleration in tenant demand that has caught the brokerage community’s attention. “At the end of Q2 of 2025 we were tracking like around 5 million square feet of tenants in the market,” she said. “We actually saw that increase to over 8 million square feet” by the end of the third quarter, and “now at the end of the year, we were tracking in between 10 and 11 million square feet of leasing activity. So like, over double in six months time.”

That surge aligns with broader market data. Commercial leasing in Silicon Valley during the third quarter of 2025 was nearly 49 percent higher than the prior quarter, according to a report from the Silicon Valley Institute for Regional Studies and JLL. Full-year leasing volume for 2025 reached 7 million square feet in the South Bay alone, the highest since the pandemic began, representing a 26 percent increase over 2024, according to Savills.

Bellotti pointed to downtown Sunnyvale as evidence of the recovery. “It’s 100 percent leased, so there is no office space really left in downtown Sunnyvale,” she said, citing major commitments by Databricks, CrowdStrike, and Grail. Indeed, Databricks leased 455,000 square feet across two buildings and CrowdStrike took 150,000 square feet, filling both office buildings in the Cityline development, according to published reports.

She also described a shift in space planning. “We’re also seeing a lot of one to one ratios coming back, meaning one person has one desk, and it’s their desk. It’s not a hoteling situation,” Bellotti noted, pointing to a current assignment involving 350,000 square feet configured at a one-to-one employee-to-desk ratio.

Life Science: Winds Have Changed

Conte, who specializes in the life science sector, described what he called a clear inflection point. “Last quarter was the first quarter that we’ve seen positive absorption anywhere in the United States, in the last call it 10 quarters,” he said, citing approximately half a million square feet of positive absorption in the Bay Area.

Recent market data supports that assessment. According to Newmark’s Q4 2025 life science report, the Bay Area recorded its second consecutive quarter of positive net absorption at 661,000 square feet, with vacancy declining to 27.7 percent from 29.1 percent the prior quarter — the largest quarterly decrease in five years. Nationally, life science vacancy fell 30 basis points to 25.8 percent, the first quarterly improvement in more than a year, while venture capital funding reached $28.2 billion in 2025, rising for a second consecutive year.

Conte emphasized the Bay Area’s enduring concentration of research capital. “53 cents of every research dollar spent in life science is spent in either Boston or San Francisco. And that’s a global number. That’s up from 52 cents out of every dollar,” he said. He identified Yamanaka factors — a cell rejuvenation technology currently in phase one trials — and antibody drug conjugates, or ADCs, as the emerging science likely to drive the next wave of tenant demand. “Those are two things that are being widely under discussed that are not known to the marketplace,” Conte said.

Vacant Life Science Buildings and the Reset Problem

Despite the optimism, Conte acknowledged a significant structural challenge. During the market upcycle, inexperienced developers built speculative life science buildings attracted by high rents and long lease terms. Many of those projects now sit vacant, with ownership groups in or near default. “These buildings are only worth somewhere between 20 and 30 percent of what their book value is,” he said. “So now you got a liquidity problem if you’re a bank.”

The resolution, he argued, will come through a broader value reset and the expansion of users through the system. “It’s quietly starting to reset itself, but it’s been the big black sheet for the last, certainly 12, if not 24, months,” Conte said.

Some of these vacant life science buildings are finding second lives as R&D and robotics space. Conte noted that AI, robotics, battery research, and drone technology companies can leverage the power capacity and building infrastructure originally designed for lab use. He cited 150 Industrial in Fremont — built by Greenmark Capital — as an example of a purpose-built life science building that signed its first tenant, a non-life-science company, for warehouse and R&D use.

Medical Office: Federal Funding Disruptions Create Urgency

Leonard shared a transaction that illustrated the ripple effects of federal funding cuts on the medical real estate sector. A two-building medical project near downtown San Mateo, zoned for single-family use but grandfathered for medical occupancy, faced a crisis when Planned Parenthood abruptly vacated due to federal funding changes. The landlord had six months to fill the space or lose the grandfathered zoning, which would have cut the property’s value in half.

“Through our network and our talking with people, we found a buyer group called Northeast Medical Services,” Leonard said, describing a federally qualified healthcare center that closed on the acquisition in approximately 35 days. “The value of existing clinical build outs was immense. They needed to occupy somewhere in two months.”

Leonard also described the evolving nature of medical tenants. Large health systems like Stanford Healthcare and Kaiser are taking a long planning approach, committing to real estate before hiring. “They’re going to go, like, take that big piece of real estate commitment on and then recruit around it,” he said. Meanwhile, newer private-equity-backed practices focused on concierge and cash-pay models are more time-sensitive and business-oriented, placing a premium on location and aesthetics.

The Move-In-Ready Imperative

A recurring theme was the importance of spaces that are ready for immediate occupancy. Bellotti described a project in downtown Palo Alto — 8,500 square feet of office space atop 19 luxury apartments — where the landlord spent two years debating a spec build-out at roughly $200 per square foot. Once completed, the space was leased to an AI company before the fire department even issued final sign-off. “The space was ready to go, and they really didn’t have to think about anything else,” Bellotti said.

Conte framed the challenge in terms of the startup ecosystem. Of the roughly 18 to 22 million square feet of available space in the Bay Area, he estimated only about 10 percent is truly move-in ready. “What you can’t hand to a Series A company that just raised its money and only has the burn of 18 months in front of them is a 24-month construction project,” Conte said.

Return to Office Accelerates

The panelists reported growing momentum in return-to-office activity, driven in part by major employers leading by example. Bellotti noted that Google retracted 1.2 million square feet of sublease space it had previously put on the market — a move some in the industry interpreted as both a workforce consolidation and a competitive strategy near OpenAI’s Mountain View offices.

The broader Bay Area office market is showing signs of stabilization. According to CompStak, average effective rents reached $79.67 per square foot in 2025, within 1 percent of 2019 levels, while the vacancy rate edged down from its post-pandemic peak. Colliers reported that the Peninsula recorded nearly 98,000 square feet of positive net absorption in the third quarter of 2025, snapping an eight-quarter streak of occupancy losses.

AI’s Dual Role: Creator and Disruptor

A lively audience discussion explored AI’s impact on real estate demand. Conte acknowledged the tension between AI companies consuming space and AI technology potentially reducing headcounts. He noted that CBRE’s stock dropped sharply on fears that AI would shrink office demand, but argued the reaction was overblown. “The human element here is actually going to win. It’s going to become a tool in our tool belt, rather than the institute that takes over,” Conte said.

Leonard offered a concrete counterpoint to fears of AI-driven displacement in the healthcare sector, noting that AI-assisted transcription of doctor visits is allowing physicians to see roughly 20 percent more patients — a meaningful productivity gain in a labor-constrained industry.

“We all have to adapt, and adapting is something that humans have done forever,” Bellotti said. “AI could never be this,” she added, gesturing to the room of panelists and attendees gathered for the morning’s discussion.