In the strongest signal yet that San Francisco’s office market is rising from the bottom, the total number of office buildings sold in downtown San Francisco in 2024 was double the total for the previous two years combined.
According to CBRE data, a total of 23 office buildings were sold in San Francisco last year encompassing $916M in sales volume, including partial interest and loan note sales. Only a dozen office buildings traded during 2022 and 2023 combined, encompassing a total of $863M.
Most of the deals were at bargain basement prices, but the pricing average is heading up. The average office deal was $310 per square foot, up from $253 in 2023. Before the pandemic, 25 downtown office buildings were sold in 2018 in San Francisco for an average of $861 per square foot.
In a deal that promises to jumpstart the sales volume in 2025, San Francisco-based Flynn Properties is in talks to acquire nearly $417M in debt backed by Market Center, the 745K square foot two-building office complex at 555-575 Market Street, the San Francisco Business Times reported.
According to the report, the purchase price for the loan backed by the property, which was Chevron’s former downtown headquarters, is expected to be in the $170 to $180M range, which translates into about $230 per square foot.
New York-based Paramount Group defaulted on the loan backed by Market Center last summer. Lenders led by Amsterdam ING began exploring the sale of the debt at the end of last year, tapping Eastdil Secured to assist with the process.
Paramount acquired Market Center with a joint venture partner in 2019 for $722M, slightly more than $960 per SF. The Manhattan-based REIT wrote its investment in the complex down to zero at the end of 2023.
Flynn, which also operates a global restaurant franchising operation and owns hotels, has been expanding its office footprint.
In August, Flynn Properties and Ellis Partners acquired 631 Howard Street, a 109K square foot office building in downtown San Francisco, for $36.4M. The building is fully leased, which includes tenants SC Johnson & Son and payments technology platform Finix expiring in September 2025.
Office buildings that were sold last year in downtown San Francisco were priced at less than $100M, with numerous all-cash transactions aiming to grab distressed properties with valuations that have plunged by up to 70%.
Investors increasingly are confident that the record-high office vacancy rate in San Francisco, which appears to have leveled off at nearly 37%, will begin to recede in 2025.
CBRE, which said the growing number of office sales transactions in the city suggests a larger buyer pool, projects that growing lease demand could lead to a rebound in sales prices as institutional investors come back into the market, the San Francisco Chronicle reported.
The generative AI boom has been driving office leasing activity in the city for the past two years, with a rapidly growing number of AI companies leasing a total of 4.7M SF as of the end of 2024.
JLL is projecting that the AI footprint could reach 5.5M square feet in San Francisco by the end of this year, a total that is expected to more than double by the end of the decade.