San Francisco office owners are finally seeing the light—or at least a glimmer in the distance. In the second quarter, office leasing activity totaled 1.1 million square feet, more than twice the previous quarter's leasing activity, according to a market report from Savills. More than half—59%—of the leasing activity was for new locations, and 61.5% of the leases were signed by tech companies.

The return of tenant demand is an indicator that a recovery is underway, however, the report is quick to note that demand is still significantly below pre-pandemic levels, and Savills called the market fundamentals "shaky at best." The office vacancy rate was 26.3%, up from 13.5% in the second quarter 2020 and up 270 basis points from the previous quarter. Class-A vacancy has climbed 330 basis points to 24%. By comparison, the vacancy rate pre-pandemic was 9.5% overall and class-A vacancy rate was only 8.8%.

Asking rents have fallen 8.5% to $72.55 per foot, down from $79.31 that same time last year. Class-A asking rents have also fallen substantially to $75.45 compared to $83.68 at the same time last year. The vacancy rate will keep downward pressure on rents, and Savills expects prices to fall until "meaningful" net absorption occurs.