Story Highlights
- San Francisco office buildings resell at 67% discount rate.
- Discounts attract investors, with $3 billion in office sales.
- S.F. is second in nation in discount rate, and third in total dollar sales.
More than two-thirds of San Francisco office buildings have resold at lower prices over the past two years — the second-highest share nationally.
San Francisco’s 67% rate of markdowns far exceeds the 42% U.S. average, Yardi Research said. Only Houston recorded a larger share.
The reset underscores how far values have fallen in one of the country’s most expensive office markets, even as lower prices draw new capital. By July, the Bay Area logged more than $3 billion in office sales, joining Manhattan and Washington, D.C., as the only markets to reach that level.
The glut of office space, worsened by remote work during the pandemic, has driven down values nationwide. San Francisco’s vacancy is near 35%, the highest of any U.S. market, though it has eased slightly.
Discounts are pulling investors off the sidelines, said Peter Kolaczynski of Yardi Research. Nationally, more than 3,200 office properties with at least two prior sales have changed hands since early 2023, with many buyers targeting redevelopment or repurposing opportunities.
Signs of recovery
Some of the steepest cuts have struck marquee towers. Across the U.S., about 71% of prime office buildings have sold at discounts since 2023 — a pattern echoed in San Francisco, where trophy assets have been among the hardest hit. In central business districts nationwide, 70% of sales closed below prior values, Yardi said.
The shifting economics are drawing new bidders. Madison Capital, a New York-based investor, is pursuing 600 Battery St., a building near Jackson Square, one of the first districts to bounce back from the pandemic.
San Francisco’s recovery remains unsettled, though early signs suggest stabilization. While vacancies across the city's and Bay Area's office markets remain high, AI-driven leasing activity has jumped sevenfold since 2020, according to the brokerage Colliers.
Glen Weiss, an office leasing executive with Vornado Realty Trust, told investors this month that conditions in the city's office market show signs of improvement, with cleaner streets, busier buildings and an uptick in leasing and tours. He compared the shift in San Francisco to New York about 18 months earlier, when activity began to rebound.
Vornado, which owns the 52-story 555 California St. tower, has said it is open to selling the property. CEO Steven Roth suggested likely buyers would be opportunistic investors — someone looking to scoop up a trophy building at a discount.
