- Class B accounted for 1.9 million square feet of San Francisco leasing in the second quarter, ahead of Class A’s 1.5 million, while Class C recorded just 174,856 square feet.
- Trophy Class A assets carry a 54% rent premium over Class B, pushing price-sensitive tenants down-market, and Class B drives about 70% of early-stage AI leasing.
- Zurich Alternative Asset Management paid $47 million for 410 Townsend Street, close to its 2013 price and more than double its 2024 sale.
San Francisco’s Class B offices are gaining momentum as demand from AI companies trickles down from trophy buildings, according to The Real Deal.
Class B drew more leasing than Class A in the second quarter.
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Rents Push Tenants Down-Market
Avison Young’s second-quarter report showed a 54% premium for trophy Class A over Class B in San Francisco. Less established, more price-sensitive companies are looking toward Class B, said Nadia Evangelou of the National Association of Realtors.
She said Class B accounts for about 70% of leasing by early-stage AI companies, while Class C continues to lag.
Absorption Tells the Story
Kidder Mathews data shows second-quarter net absorption of 624,762 square feet in Class A and 244,625 in Class B, while Class C posted negative 39,790. Class B leasing totaled 1.9 million square feet against 1.5 million for Class A and 174,856 for Class C.
Evangelou called vacancy a backward-looking stock measure and said absorption better shows where the market is heading. The shift extends the story of AI office leasing beyond trophy towers.
Pricing Resets in SoMa
In late September, Zurich Alternative Asset Management bought the offices at 410 Townsend Street in South of Market for $47 million. The property traded for $22 million in 2024 and $86 million in 2019, and sold for $49 million in a 2013 deal where Zurich was also the buyer.
Zurich’s Sean Bannon said few assets can be bought today at their 2013 price. Leasing at Transamerica Pyramid Center shows the Class A side of the same recovery.
Why It Matters
Class B demand suggests the San Francisco recovery is broadening, which could support values for older buildings that have struggled. Evangelou said the market is finally moving in the right direction.
Housing costs show the same pressure. Zumper put the median one-bedroom rent at an all-time high of $4,400 last month, up 25% year over year, and landlords are offering five- and six-figure buyouts to tenants.
What’s Next
Watch whether Class B absorption holds as AI tenants expand and Class A rents keep rising. Class C has yet to benefit, and vacancy remains high.
