San Francisco's once-booming commercial real estate market is shaking under the weight of the post-pandemic era and the rise of remote work, with property values expected to plummet by over 80% in some cases. Some believe that 350 California Street may be the proverbial canary in the coal mine for downtown's smaller commercial landlords. Once bustling with tech industry professionals and offering some of the most exclusive, expensive commercial real estate spaces in the country, the city's downtown area now faces an unknown future, potentially creating a risk of an unraveling of the very fabric of San Francisco's economy.
With people continuing to work from home, San Francisco's commercial real estate is struggling to survive - amidst this slump, the Union Bank Building at 350 California Street may well become a symbol of the city's post-pandemic property market woes. As originally reported by SF Standard, the building was valued at around $300 million just two years ago, but as it went on sale in 2020, the price dropped to approximately $250 million. With final offers reportedly coming in at a staggering $60 million, many commercial real estate brokers are left with a sinking feeling about not just the Financial Disctrict's future, but San Francisco's in general.
As the city is left reeling from this downturn, property values at 550 California Street may take a similar hit. The Real Deal reported that Wells Fargo, the building's owner, is likely to sell at a deep discount: around $40 million, despite an original asking price nearer to $150 million. For countless commercial landlords in downtown San Francisco, it seems the writing is on the wall, as bleak forecasts turn their worst nightmares into a harsh reality.
All of this upheaval has experts asking: What happened to San Francisco's once-thriving commercial real estate market? It seems that the city's vast amounts of office space are becoming increasingly difficult to lease or sell, leading to severe consequences for the wider economy. Recent statistics from the Crexi highlight only further emphasize this downturn: according to their data, San Francisco's office market ended 2022 with a staggering 32.1% vacancy rate and a record negative absorption of over 4.5 million square feet.
This stagnation is not just felt in the office sector - even industries like retail, which were initially considered more resilient, have faced similar challenges, with the New York Times reporting on the recent closure of a Whole Foods Market in the city due to safety concerns and an increase in crime, per this NY Times article. In a city that once boasted some of the most desirable commercial spaces in the country, this perfect storm of declining property values, reported rising crime rates, and pandemic-fueled economic uncertainty raises serious questions about its future viability.
There is hope on the horizon, however. Experts like Garry Tan, president of venture capital firm Y Combinator, see potential for San Francisco's rebound. Tan cited the city's rich history of bouncing back from adversity in an inteview with The Times. In the meantime, Mayor London Breed is aggressively pursuing policies to address the city's twin problems of homelessness and drug dealing, with plans to expedite the construction of 83,000 new homes and apartments and lobbying for new legislation allowing for more accessible mental illness treatment, even without consent in some cases.
Though some SF businesses are now calling for a gradual return to office, the rise of remote work unlikely to fully reverse any time soon. As such, the landscape of San Francisco's commercial real estate may never look the same - so while the city's resilience and resourcefulness cannot be understated, the million-dollar question remains: Will the city's famed commercial hubs and high-rise office parks ever return to their former glory? And if not, what will take their place in the iconic skyline of this world-famous city by the bay?