Another downtown San Francisco office tower is up for sale for a price that's just a fraction of what it previously sold for, the latest sign of a market struggling with plummeting valuations.
New York investment firm Clarion Partners is hunting for buyers interested in snapping up its 11-story 60 Spear St. property for $55 million, about half of what the global asset manager paid for the 157,500-square-foot building nearly a decade ago. The firm has enlisted JLL to market the downtown San Francisco property, which it acquired in late 2014 for $107 million, according to CoStar data.
The Spear Street listing lands at a point when San Francisco's office market is contending with record-high vacancy rates, falling rents, and a dwindling pool of tenants willing to invest in new space — or keep what they already have. It's a stark turnaround from San Francisco's standing before the pandemic as the nation's priciest office market.
A troublesome combination of widespread layoffs across the tech industry, a flight to top-tier properties and hybrid work arrangements, among other economic 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.
The sales environment in the city has been especially pressured as investors, already contending with rising interest rates and a challenging financial climate, have been spooked by plummeting valuations and falling rental rates. No major acquisitions have closed since 2020 and less than $7.75 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.
Neither Clarion Partners nor JLL responded to CoStar News' immediate requests to comment.
Few Willing Takers
Elsewhere in the city, CBRE Global Investors is trying to offload 123 Townsend for $90 million, also for a price far lower than what the investment management company paid when it acquired the nearly 137,000-square-foot office property about three years ago. The firm, which has enlisted Newmark to help market the building, paid $140 million for it in mid 2020.
Several blocks away from Clarion Partner's Spear Street tower is 350 California St., a fellow office building that is expected to trade for a deeply discounted price. Three years after the nearly 300,000-square-foot property hit the market, a San Francisco-based developer is expected to close on the building for about $70 million, a roughly 75% discount compared to the price Union Bank had hoped to command when it listed the downtown tower at the height of the pandemic in mid-2020.
The lower sale prices have been attributed to San Francisco's mounting office market woes, which include an unprecedented amount of sublease space and deflated confidence among investors in a top-tier city that previously touted some of the priciest valuations in the country.
With an office vacancy rate in downtown San Francisco averaging more than 26%, according to CoStar data, the city has been overloaded with a record amount of direct and sublease space. More than 1.7 million square feet of sublet space is available in the Financial District alone, a figure expected to climb even higher as companies shed unused and unwanted space.