The days of sky-high property valuations and competitive bidding wars in San Francisco's office market have come to an end as a new wave of buyers are resetting price expectations in the face of the city's new economic reality.
Presidio Bay Ventures, a San Francisco-based development firm, is the latest investor to score a deeply discounted deal as buyers and sellers grapple with the impact of the pandemic on San Francisco's beleaguered office sector. The firm officially finalized a deal with Clarion Partners to acquire the building at 60 Spear St. for just shy of $41 million, according to city property records, far below the property's roughly $55 million listing price and lower still than the previously reported $45 million closing price.
The price, roughly $260 per square foot, is the latest in a string of office sales that have or will soon close and are collectively resetting owners' expectations as they come to accept the city's new era of office valuations. The price tag for the deal, if it closes, amounts to less than one-third of the $107 million Clarion paid to acquire the 157,500-square-foot building nearly a decade ago, according to CoStar data.
"We have remained optimistic about the San Francisco office market and saw 60 Spear as a phenomenal opportunity in a prominent downtown location," Presidio Bay Managing Principal and Founder K. Cyrus Sanandaji said in a statement to CoStar News. "Though we acknowledge the formidable challenges that confront San Francisco, we have already witnessed substantial improvements in these areas and believe that a true urban renaissance is unfolding within the city."
Deal volume in the city is poised to regain momentum after hitting a near standstill in the years following the pandemic's 2020 outbreak.
However, the sale underscores San Francisco's battered standing as one of the world's most expensive office markets that, before the pandemic, had benefited from years of rent growth and seemingly infallible leasing activity. A troublesome combination of widespread layoffs across the tech industry, a flight to top-tier properties, and hybrid work arrangements, among other pandemic-related factors, have collided to push demand for office space in the city to levels not seen since the dot-com bust in the early 2000s.
No major acquisitions have closed since 2020, and about $23.5 million of office deals have completed in the past year, according to CoStar data.
By comparison, more than $1.5 billion of office deals closed in all of 2019.
Plummeting tenant demand and the high cost of capital have meant recent sales prices and property appraisals show values for distressed office properties have fallen by 50% or more below previous levels, according to CoStar analysis.