By Scott Pritchett, CPM®, President Commercial Operations at Woodmont Real Estate Services
The vastly improved commercial real estate market from the post-pandemic doldrums is set to become even stronger, according to a recent Silicon Valley broker panel.
Driven by AI and greater demand for office and R&D space, a robust consumer market seeking ever-more retail options, experiences, and convenience, and investors looking to park money in the relative safety of commercial property, Silicon Valley, San Francisco and to a degree, the Peninsula submarkets are poised to have its best year since 2019.
“I’ve been moderating this BOMA panel for a few years now, and I have never seen this much market optimism from the panel,” said Scott Pritchett, CPM®,President Commercial Operations at Woodmont Real Estate Services.
Pritchett noted that California is tied with Japan as the 4th largest economy in the world, as measured by gross domestic product at $4.3 trillion (compared with the U.S. $30.5 trillion, China $19.4 trillion and Germany $5 trillion), and the Golden State continues to lead all other states in venture capital (VC) funding – which continues to soar. In 2025 global VC funding exceeded $400 billion, compared with $314 billion in 2024.
At the close of 2025, tenant demand for office/R&D space in Silicon Valley totaled 10.4 million square feet of, or the most since late in 2019.
Moreover, AI-based companies are expected to lease 2 million square feet in San Francisco alone in 2026 and bring AI occupancy to 9.1 million square feet. That compares with as little as 2.6 million square feet in 2022.
Related, and in a reversal from tech companies flooding the market with sublease space post-pandemic, Google plans to pull back near 2 million square feet of sublease space in Silicon Valley. This represents a clear sign of surging employment growth – and more demand for office/R&D space.
“With every (up) cycle, the newly emerged technology of that era has always generated growth and that’s what’s happening now with AI – it is driving the market,” said Bryte Bellotti, Managing Director with JLL at a recent BOMA (Building Owners and Managers Association) Silicon Valley event.
No new office development deliveries are expected this year or next – a market fact that should drive positive gross and likely net absorption through 2027. And then expect a steep incline in deliverables from 2028 – 2031.
The Bay Area’s office vacancy rate is expected to drop 100 basis point this year, fueled by elevated tenant demand in both San Francisco and Silicon Valley markets.
Even in a market still defined by uncertainty, February 2026 offered a glimmer of encouragement for the U.S. office sector. According to Yardi’s CommercialCafe, national office vacancy averaged 17.6% that month—a two-percentage-point improvement from a year earlier. The decline suggests some long-awaited stabilization, though an elevated vacancy rate underscores how far the recovery remains from a more balanced market.
Silicon Valley office leasing volume reached 5.4 million square feet in 2025. That’s more than twice the volume in 2020 when the pandemic hit, with 2.34 million square feet of leasing volume.
AI continues to push growth in employment. Job postings for in-office workers increased 8% in the past year, while job postings for remote work declined 7% during the same period.
“Some 60% of Silicon Valley leasing is R&D space (only 40% office) because these properties combine talent with maker space and funding all under one roof,” Bellotti said.
The BOMA event was moderated by Scott Pritchett.
More than 1.5 million square feet of R&D space to be taken by robotics and drone companies in 2026.
On the retail front, panelist Mike Conroy, an Executive Director with The Econic Company, said that “despite the Amazon effect of retail sales shifting to online from an in-store experience, that trend seems to have stalled, with online sales accounting for 15% of total retail sales volume, or about where it has been in recent years.”
That’s positive news for retail real estate and retail property owners, and it is good for consumers and even tenant rep retail brokers, as the demand for in-store shopping fuels the pipeline for new retailers to come to the region.
The biggest drivers of retail demand are coming from mainstream grocery chains, ethnic food stores, franchises, fitness centers and specialty gyms and what Conroy referred to as “Medtail,” or a hybrid word for the increase in medical service providers in retail shopping centers and strip mall, including new healthcare providers, such as IV therapy stores – in addition to dentists and urgent care providers.
The overall retail vacancy rate hovers at 5.2%, “yet it feels like 1% – 2%,” said Conroy.
During the conversation on investment real estate – or capital markets, Pritchett noted that the status of the so-called “extend and pretend” practice in which lenders have been routinely extending loan terms and “pretending” lending rates would drop and valuations would increase – is not happening with as much frequency compared with a few years ago.
“Banks simply do not want to own real estate, so they continue to work with borrowers to find solutions when loans come due, in some cases demanding more equity investment on the loan from the borrower. But even then, we are seeing some foreclosures and will likely continue to see some here and there,” said Pritchett.
However, “flight to safety” is a phenomenon we’ve seen during other turbulent times when real estate once again looks like a safe bet to park some money, albeit at risk adjusted, lower returns in exchange for the safety.
“Money is flowing back into commercial real estate as an asset class again, with investment markets increasingly skittish about over-valued stocks and the risk of rising inflation from the Iran war,” said Gene Williams, Managing Director, Valbridge Property Appraisers.
Interest rates for commercial loans are now in the low-to-mid 6% range.
Despite the problematic legacy loans, Williams explained that loans for property investment are easier to obtain than they have been in recent years.
About Woodmont Real Estate Services
Woodmont Real Estate Services is one of the leading independently owned Northern California property management and building services company specializing in multifamily and commercial properties, with over 13,000 apartment homes and 7 million square feet of commercial property under management. The firm is 100% third-party management firm without ownership conflicts of interest. Its competitive advantages include a regional focus, industry experience, operational expertise, transparent fee structure, and property marketing excellence. Woodmont’s exceptional people are passionate about their work and serve clients with the utmost respect and integrity. The firm has regional offices in Belmont (also its Headquarters), Santa Rosa and Sacramento. For more information call 650.592.3960 or visit www.wres.com
