The commercial real estate market in San Francisco, still reeling from the impacts of the pandemic and the shift to remote work, is witnessing transactions that reflect a substantial devaluation of property assets. A striking case is the proposed sale of the building at 989 Market St., once the headquarters of Zendesk, which is being purchased for $13.5 million by L.A.-based BH Properties. This figure represents a nearly 80 percent cut from its $61.3 million purchase price a decade ago, as per intel gathered by the San Francisco Chronicle.

Earlier reports from The Real Deal had ASB Real Estate Investments eyeing a sale price of around $12 million for the half-empty Midtown building, a figure mirroring the challenging landscape for office space in the city. Alongside the Zendesk building’s sale, another property in SoMa reached a deal point with Flynn Properties and Ellis Partners acquiring 631 Howard St. for approximately $38.8 million, a stark contrast in per-square-foot pricing compared to the Market Street property, signaling the variegated nature of commercial real estate value across different neighborhoods.

Some insiders suggest that the discrepancy in pricing between these buildings is related to both their occupancy rates and their locations within the city. Indeed, 631 Howard St., fully leased to SC Johnson & Son, fetched around $360 per square foot, as opposed to 989 Market St., brokering a deal at roughly $115 per square foot, according to multiple individuals familiar with the sales, as reported by the San Francisco Chronicle. The significant price reduction at 989 Market St. may be setting a new, lower benchmark for property values in its vicinity.

These recent developments showcase the broader trend affecting the city's commercial real estate sector. Last year, the Union Bank Building at 350 California Street, once valued at approximately $300 million, interrogated the market's health as final offers came in around $60 million, a situation that forewarned a possible ripple effect across other downtown properties. As seen in a report by Hoodline, the city's commercial spaces are grappling with high vacancy rates and value depreciation.

With vacant storefronts and reduced foot traffic, areas like Mid-Market, previously targeted by tech companies due to tax breaks, have been especially hit hard. In addition to the lower property values, the neighborhood has been facing challenges with open-air drug use and safety concerns as outlined by The Business Times. Amidst the disrupted landscape, local investors and opportunistic buyers continue to recalibrate their strategies as they navigate through San Francisco's evolving commercial real estate panorama.