Source: The San Francisco Standard — 

Imagine a slow-moving train coming towards you. The lights are shining, the horn is blaring, but it’s just far enough in the distance that the risk doesn’t seem real just yet.

That’s a fitting-enough analogy for the state of San Francisco’s commercial real estate market, which is tilting towards a collapse in property values, leaving the city, its budget and its ability to provide services tied to the tracks.

The root of this—of course—is the pandemic and the way that it has completely transformed work patterns in the city, hollowing out a downtown core that once accounted for most of San Francisco’s GDP, 70% of its sales tax revenue and 40% of the city’s jobs. And there’s an uneasy feeling among a coalition of business groups that city leaders are sleepwalking into an economic calamity with far-reaching consequences.

Signal lights of the city’s tenuous fiscal future are starting to flash. Major tech employers like Yelp and Airbnb have fled or gone fully remote, leading to mass office vacancies. A swath of commercial landlords are seeking massive reductions in their assessed property values—and associated tax bills. And a recent report from the Urban Displacement Project ranked the city’s downtown recovery as dead last among more than 60 cities across North America.

‘Uncharted Territory’

It’s no secret that office vacancies are high in SF’s downtown. But even as the pandemic wanes, an already-troubling outlook for downtown could only get worse. 

That’s because a slew of office leases signed at the height of the city’s economic boom are poised to expire over the next few years, further inflating vacancies and diminishing what the office towers that draw the city’s skyline are worth. There’s currently more than 25 million square feet of commercial space available for lease or sublease in the city, the equivalent of about 35 Transamerica Pyramids sitting empty.