San Francisco’s warehouse market is sending mixed signals. Vacancy rates are climbing, rent growth is flat, and demand in some segments is softening; yet, developers are still delivering millions of square feet of new space. This is no broad-based boom, but a market reshaped by specialized demand.
The city’s industrial scene has split into two distinct stories: a life sciences and flex segment driving record development, and a traditional logistics sector facing cyclical headwinds. This article breaks down the latest data, key growth drivers, structural constraints, and strategic takeaways to help investors, developers, and tenants navigate this unique industrial landscape.
TL;DR
- San Francisco’s warehouse “heat” is concentrated in life sciences and flex developments.
- Logistics remains stable but is facing slower leasing activity following the pandemic.
- High costs and land scarcity push development toward high-value, specialized uses.
- Vacancy rates are rising even as construction reaches historic highs.
- Adaptive reuse and niche growth sectors drive long-term resilience.
San Francisco Industrial Market at a Glance
The city’s industrial sector is in the midst of a structural shift. To understand where the opportunities and risks lie, it’s essential to examine recent performance data and the dynamics between its two key segments: logistics and flex/life sciences.
Core Market Metrics (Q4 2024 – Q2 2025)
San Francisco’s warehouse market has been balancing record construction with a challenging demand environment.
Vacancy Rates
- Q4 2024: Overall vacancy at 12.5%
- Q2 2025: Improved slightly to 9.5%, but still above pre-pandemic averages
- East Bay comparison: 6.5% vacancy in mid-2024, showing regional disparities
Rents and Rent Growth
- Average asking rate: $1.79 per square foot per month (industrial gross) in Q2 2025
- Among the highest in the U.S., but negative rent growth of 0.3–0.4% signals a “stagnant-but-expensive” market
Absorption Trends
- Q4 2024: -1.3 million SF net absorption
- Q2 2025: Loss reduced to -76,510 SF, showing a moderation in tenant move-outs
Construction Pipeline
- 3.5 million SF under construction, all concentrated in flex/life sciences projects
- 2.1 million SF delivered in the past year
The Bifurcated Market
San Francisco’s industrial market is not moving in unison; it’s effectively two different submarkets.
Flex/Life Sciences
- Drives all new development activity
- Vacancy surged to 23.2% in late 2024 due to oversupply and slowing biotech expansion
- Tenants are highly specialized, making leasing slower but at higher rent levels
Traditional Logistics
- Vacancy stable around 7.2%, aligned with long-term averages
- Leasing volume fell 30% in 2024 compared to 2023
- Weakness tied to post-pandemic retail normalization and high financing costs, not structural decline
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What’s Driving the “Heat” in the Market?
While overall performance may seem muted, certain high-value segments are creating concentrated momentum within San Francisco’s industrial market. Understanding these drivers helps clarify why the city is seeing both record development and elevated vacancies at the same time.
Life Sciences Development Surge
The life sciences sector has become the anchor for new industrial construction in San Francisco. Every project currently under construction is designed as a flex space to support research and development needs. While vacancy in this segment has risen sharply due to an oversupply, long-term fundamentals remain strong because of the region’s biotech ecosystem and clustering of talent.
Last-Mile and E-commerce Influence
Although logistics leasing slowed in 2024, demand for last-mile and infill space remains a long-term driver. Companies focused on quick delivery still require locations near dense urban populations, and San Francisco’s geographic position makes it an attractive market for these operations despite high operating costs.
Investor and Owner-User Activity
With institutional buyers reducing activity due to higher interest rates, owner-users and smaller investors are stepping in. Owner-users accounted for nearly a third of acquisitions in early 2024, prioritizing long-term operational needs over speculative returns. This shift has helped stabilize transaction volume despite softer institutional demand.
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Structural Constraints Shaping the Market
San Francisco’s industrial market is defined not just by demand patterns but also by deep-rooted constraints. These structural factors limit traditional warehouse expansion and push development toward high-value, specialized uses that can justify the city’s costs and regulatory challenges.
Land Scarcity and High Costs
San Francisco has an extremely limited supply of land suitable for industrial use. Over time, many prime industrial areas have been converted to residential or office developments, leaving little room for traditional warehouses. The high cost of remaining parcels incentivizes developers to pursue projects with greater value potential, such as life sciences facilities.
Adaptive Reuse Policies
City leaders are encouraging the transformation of underused office buildings into industrial uses like laboratories and light manufacturing. Incentives include reduced fees and waived taxes on eligible conversions. This policy not only addresses high office vacancy rates but also creates a pathway for adding much-needed space in sectors driving current demand.
Complex Zoning and Permitting
The city’s zoning regulations and lengthy permitting process add both time and cost to new industrial projects. Approvals can take months, which often discourages traditional warehouse proposals with thinner margins. High-value specialized developments are more likely to navigate these challenges because their expected returns justify the additional investment.
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How San Francisco Compares to Rival Hubs?
While San Francisco’s industrial market faces unique challenges, it also benefits from factors that give it a competitive edge over other West Coast hubs. A closer look at location, infrastructure, and sector focus reveals why demand here remains strong despite higher costs.
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The Outlook for 2025 and Beyond
San Francisco’s warehouse and industrial market is at a turning point. While certain metrics indicate caution in the short term, longer-term trends suggest areas of opportunity for developers, investors, and tenants. The following breakdown highlights the most important factors shaping the market’s direction.
Short-Term Forecast
In the near term, San Francisco’s warehouse market is expected to face elevated vacancy rates and limited rent growth. A mix of increased supply and cautious tenant expansion will keep landlords competing for quality tenants. For investors, this means short-term returns may remain modest until absorption rates improve.
Opportunities for Developers
Developers can find an edge by prioritizing flexible, multi-purpose warehouse designs that can adapt to tenant needs. High-quality spaces suitable for both logistics and light manufacturing are in demand. Adaptive reuse of older industrial properties into modern, tech-friendly spaces can also attract niche, high-value tenants seeking urban proximity.
Investor Takeaways
Investors should consider diversifying between stable logistics properties, which offer steady returns, and high-risk, high-reward life sciences assets. While logistics facilities benefit from e-commerce demand, life sciences spaces can generate exceptional yields if the tenant base is strong. Balancing both sectors can help mitigate cyclical market volatility.
Tenant Advantage
With higher vacancy rates, tenants currently enjoy greater leverage in lease negotiations. This creates opportunities for securing favorable rental rates, longer concession periods, and enhanced build-out allowances. Businesses planning expansion or relocation may find now to be the most strategic time to lock in advantageous lease terms.
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Conclusion
San Francisco’s warehouse market is in a dynamic phase, with short-term challenges paired with long-term opportunities. Elevated vacancies give tenants leverage, while developers and investors can position themselves for future demand by targeting adaptable, high-quality spaces. Staying data-driven and strategic will be key to navigating this shift successfully.
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FAQs
Why Are San Francisco’s Industrial Rents Still High?
Despite higher vacancies, rents remain elevated due to limited developable land, high construction costs, and strong demand from niche sectors like life sciences. Long-term leases signed at peak rates also help sustain current pricing levels.
Which Sector Is Driving Most New Warehouse Development?
Life sciences and advanced manufacturing are leading new warehouse construction in San Francisco, supported by strong research funding and specialized space needs. These projects often prioritize high-quality, adaptable designs to meet both current and future industry demands.
Is the Logistics Segment in Decline?
The logistics segment is not in full decline but has slowed compared to its pandemic peak. Demand is stabilizing as e-commerce growth moderates, though key distribution hubs still maintain healthy activity due to regional supply chain needs.
How Is Adaptive Reuse Changing the Market?
Adaptive reuse is converting outdated warehouses into high-tech labs, production facilities, or mixed-use spaces. This trend revitalizes underused properties, meets evolving tenant needs, and offers investors new revenue streams while minimizing the cost and time of ground-up construction.
