San Francisco Office Investment Forecast
San Francisco Awaits Full Reopening from Tech Firms;
Investor Due Diligence Rises Ahead of Recovery
Office recovery remains tied to health crisis. The trajectory of the pandemic and local response to evolving conditions will have a profound impact on the pace of San Francisco's office improvement in the coming quarters. Several major employers have already transitioned to a remote or hybrid model, including Salesforce, the metro's largest office tenant. These companies are returning sublease space to the market, competing with traditional landlords. Due to the cash-heavy position of many large tech firms, the ability to undercut asking rents offered by traditional office operators is pronounced. As a result, much of the sublease space available in the city, which represents approximately 5 percent of inventory, will need to be absorbed prior to a more substantial impact on market-rate fundamentals. On the supply side, construction firms are grappling with proposed projects. Due to the extended nature of the permitting process, developers are moving forward with approved plans. For instance, the 61-story, 550 Howard mixed-use tower is scheduled to break ground in the first half of this year.