The market’s vacancy rate remained stable at 4.4% in the first quarter of 2026, according to Moody’s data.

Average rents were up 7% year over year in Q1 2026, according to Moody’s, surpassing pre-pandemic levels and nearing all-time highs.

Limited new supply continues to support market fundamentals, and construction activity remains below the market’s five-year average, according to Moody’s data.  

“Now, we’re seeing people come back to the city, and AI continues to be a driver,” Diggs said.

AI helps fuel growth

Return-to-office mandates and AI-driven employment growth have helped drive rental demand and growth, especially in downtown San Francisco, Diggs said.

Employers including Instagram, Amazon and the City of San Francisco are among the companies requiring employees to increase their in-office days. As a result, many employees are moving closer to the office.

Artificial intelligence is also fueling changes across industries, from healthcare to alternative investments. AI companies’ increased hiring is helping drive up rental demand and growth in San Francisco, especially in the South Bay.

“The increasing investment in AI could boost growth going forward, helping office and multifamily demand,” Diggs said. 

Affordability challenges

“As rents rise in San Francisco, affordability becomes a factor and renters look to relatively affordable alternatives like Oakland,” Diggs said.

Affordability concerns are also shifting demand within the city to other neighborhoods, including downtown, South of Market, Mission Bay, the Marina and Pacific Heights, he said.

Managing rising property costs

Property management costs continue to put pressure on margins, with property insurance showing particularly large increases, alongside rising repairs and maintenance expenses, Diggs said. 

Maintaining consistent property upkeep remains critical despite cost pressures. Delaying repairs and maintenance can lead to bigger, costlier problems down the road.

Strategic liquidity management can help investors offset rising costs. Choosing fast, frictionless payment systems that deliver payments quickly can improve cash positioning, and even short-term cash reserves can earn interest. 

Creating or reviewing a capital management plan with your banking team can help you make the most of your liquidity.