San Francisco's Office Market Is Selling at 72 Cents on the Dollar — and Still Falling
Published: December 1, 2025 | By Mariusz Kurylo
No American city has become a more vivid symbol of the commercial real estate collapse than San Francisco. A city that was commanding some of the highest office rents in North America just five years ago — $90 to $110 per square foot annually in its best districts, driven by the seemingly inexhaustible appetite of technology companies for expansion — has watched its office market deteriorate to a degree that would have seemed fantastical in 2019. By late 2025, the data was unambiguous: San Francisco's office market was a distressed asset class, with buildings selling at average discounts of 72% or more from their pre-pandemic peak valuations, according to CBRE data reported by Bloomberg.
The granular transaction data told the story without requiring editorializing. The 350 California Street tower, a 1960s-vintage office building in San Francisco's Financial District, sold in late 2024 for approximately $62 per square foot — down from a peak valuation in 2019 of approximately $600 per square foot, a decline of roughly 90%. The 60 Spear Street building, a smaller Financial District property, sold for $5.7 million in early 2025 on a building that had last traded for $62 million in 2016 — a 91% nominal decline. The Wall Street Journal compiled a running tally of distressed San Francisco office transactions that, by late 2025, showed an average transaction price below $100 per square foot for most properties, versus pre-pandemic averages above $600.
Office vacancy in the city's downtown core, tracked quarterly by CBRE and Cushman & Wakefield, had reached approximately 34% by November 2025 — the highest vacancy rate among any major U.S. downtown since Detroit's commercial collapse in the 1970s, Bloomberg noted with grim historical context. More than one-third of all downtown San Francisco office space was empty, and the available sublease space (tenants trying to offload excess square footage) added another 8 percentage points of effective vacancy.
What Happened to San Francisco's Office Market
The city's commercial real estate collapse was the product of a perfect storm that combined structural, cyclical, and localized forces. On the structural side: the technology sector's dramatic shift to remote and hybrid work after 2020 eliminated the perpetual-growth office demand that had underpinned SF's astronomical rents for a decade. Companies like Salesforce, Twitter (now X), Uber, and Lyft reduced their San Francisco office footprints by 30–60%, according to individual corporate announcements reported by Reuters and CNBC. The result was a massive transfer of space from occupied to available inventory that the market simply could not absorb.
Cyclically, the broader tech sector recession of 2022–2023 — driven by rising interest rates that deflated tech stock valuations and triggered rounds of tech industry layoffs — accelerated office space reduction precisely when the work-from-home experiment was becoming permanent policy. The Wall Street Journal documented that total tech industry headcount in San Francisco declined by approximately 30,000 employees between mid-2022 and late 2024, removing a large cohort of office workers from the daily downtown commute pool.
The localized factors were equally significant. San Francisco's downtown had experienced a dramatic increase in visible drug use, crime, and homelessness that had been covered extensively by national and international media. The practical consequence for office tenants was not merely aesthetic: companies reported difficulty attracting and retaining employees willing to commute downtown, security costs for office buildings had risen substantially, and the "urban amenity premium" that had historically justified the city's rents — world-class restaurants, retail, cultural attractions — had been eroded as businesses fled the conditions. Financial Times documented that footfall in San Francisco's Union Square had declined over 40% from pre-pandemic levels, with major retailers including Nordstrom, Whole Foods, and Old Navy closing downtown locations.
The Municipal Tax Revenue Crisis
The commercial real estate collapse was inflicting severe damage on San Francisco's city budget through the property tax channel. California's Proposition 13 limits property tax rates but not reassessments triggered by sales — meaning that when a building sells at a 90% discount from its prior assessed value, its property tax base collapses proportionally. The City Controller's projections, reported by Bloomberg, showed that San Francisco faced annual property tax revenue reductions of $200–400 million by 2026–2027 as distressed office transactions reset the tax base.
San Francisco's city budget was already under significant stress from post-pandemic social service demand and reduced business tax revenues (the city taxes gross receipts rather than property in many cases, so declining business activity reduces tax intake directly). The combined pressure from reduced property taxes and reduced business taxes was forcing painful service cuts and budget negotiations that Reuters covered as a major ongoing story through 2024 and 2025.
CoStar analysis noted that the city's fiscal stress created a potentially self-reinforcing decline: as the city's financial capacity to maintain public services, clean streets, and public safety deteriorated, it would make the office market recovery harder, which would further reduce tax revenues. Breaking this cycle required either a dramatic improvement in the office market (unlikely given structural trends), significant external financial intervention, or painful budget restructuring.
What Distressed Buyers Are Doing With the Assets
Even at 72 cents on the dollar, San Francisco office buildings were not attracting broad-based investor demand. The fundamental challenge was not just price — it was that the buildings' economics as office space might never recover. A building purchased for $62 per square foot needed to generate approximately $5–6 per square foot in annual income (at a 7–8% cap rate) to justify that price, implying rents of $18–25 per square foot after vacancy and expenses — well below what current market rents supported for most Class B and C buildings.
The buyers who were stepping in, documented by Bloomberg and the Wall Street Journal, fell into two categories. Opportunistic funds were acquiring buildings as demolition plays — the land value in certain San Francisco locations justified purchasing and demolishing the building to develop residential (particularly affordable housing, given the city's need and the conversion of some zoning restrictions), hospitality, or mixed-use projects. A second buyer cohort was purchasing specific well-located, well-amenitized Class A buildings at distressed prices as a speculative recovery play — betting that San Francisco would eventually rebound, and that owning the best-quality buildings at 2025 prices would prove profitable if and when that recovery materialized.
The Wall Street Journal quoted one institutional investor who had purchased two Financial District buildings in 2025 as saying: "We have conviction in San Francisco's long-term recovery. But that recovery could take five to ten years. You have to have patient capital and a stomach for continued bad news." Patient capital would indeed be required.
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Sources: Bloomberg, Reuters, The Wall Street Journal, Financial Times, CNBC, CoStar
Disclaimer: This article is for informational and educational purposes only. It does not constitute financial, legal, or investment advice.