Economy: Solid Fundamentals
Bay Area nonfarm employment climbed year-over-year (YOY) by 0.8% to just over 4.0 million. Over the same period the unemployment rate declined 30 basis points (bps) to 4.2%. Job growth is forecast to continue rising over the next 12 months. Median household income remained the highest of all metropolitan markets in the U.S. at $150,600, an increase of $3.7% YOY. Though there have been tech layoffs within the region, the artificial intelligence & machine learning (AI/ML) sector continues to expand its hiring while leasing large blocks of space. During the first half of 2026, Bay Area-based companies absorbed 71.2% ($308.8 billion) of all global venture capital funding into AI/ML. Expectations are for IPOs by the two largest companies in the sector (Anthropic and OpenAI) in the second half of the year.
Supply And Demand: More Product Needed
New deliveries have not been able to keep up with demand as the Bay Area economy powers forward. As such, the vacancy rate, fell to 4.3% in the second quarter of 2026, down 110 bps from one year earlier and the lowest since the third quarter of 2013. Net absorption did ease in the second quarter, the lowest since the fourth quarter of 2023, though that is likely due to a lack of units available to lease more than anything else.
Units delivered during the second quarter totaled a miniscule 663 or just 0.1% of total Bay Area inventory, the lowest figure since the second quarter of 2013. Units under construction has been on the rise over the past four quarters, hitting 18,478 units though this remains well below the record of 28,700 units set in the first quarter of 2020.
There are over 84,000 units in the proposal stage across the Bay Area, but development remains hindered by steep construction costs. However, much improved market conditions and the state’s housing mandates, including less onerous regulations, may allow for more deals to pencil out.
Pricing: Yet Another Record High
Given the tight market, it’s not surprising that pricing ticked higher once again in the Bay Area with the effective rent reaching another record high, closing the quarter at $2,921 per unit, up 7.7% YOY. San Francisco County climbed to $3,650 per unit, up 15.7% YOY, thanks to the influx of AI/ML employees and its 3.4% vacancy rate, which happens to be its lowest since the dot-com period.
