SF office conversions probably unfeasible, says expert

San Francisco office space vacancies continue to spike, reaching 27% on average this past year. The California Globe’s senior editor Evan Symon unpacks why converting unoccupied office spaces may “not be enough” to salvage them — and may not even be financially realistic.

Vacancy rates in San Francisco hit an average of 27% in 2022 according to the CBRE real estate firm this week, jumping up from 19% in 2021 and 4% in 2022, becoming the highest vacancy rate the city has seen since the early 1990s.

Throughout the year, San Francisco has struggled to entice companies to bring employees back to downtown offices amid a growing desire to work from home and reduced costs for companies to do so, while at the same time dozens of tech companies have been reduced by tens of thousands of employees across the Bay Area, lowering office demand even further. Full-time office occupancy itself has remained under 40% for much of the year, with multiple enticements by the city failing to raise that mark.…

“The rents that you can get for a life sciences lab space are much higher than office space. So it makes that conversion financially viable. We have high demand for residential still, but not at the price that would be required for a developer to be able to do that from a financial perspective.”

But converting office space may not be enough.

“The city needs to focus on keeping companies in the city, and that means lowering taxes,” Michelle Duggan, a building occupancy researcher, explained to the Globe on Friday. “But the city is refusing to listen to common sense and is looking at band-aid solutions instead. They could get away with squeezing companies during the tech boom of the 2010s, but now, post boom and post recession, they just aren’t listening to reason and think that they’ll come back any day. Rust belt cities kept thinking industry would come back too. Detroit keeps thinking the auto industry will come back. Seattle keeps thinking that Boeing will return. San Francisco cannot go down that road, but it looks like they are.”

This article originally appeared in the California Globe. Read the whole thing here.

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