Falling Office Values Make Property Tax Deficit Worse

The City of San Francisco is staring down a growing budget deficit as the result of falling property values.

For the next two fiscal years, San Francisco faces a $936 million budget deficit driven by anemic property tax revenues, the San Francisco Business Times reported. Property tax is predicted to rise nearly 2.4 percent this fiscal year before falling almost 2.8 percent in fiscal year 2027.

Presidio Bay Ventures’ purchase of 60 Spear Street in August 2023 serves as an example of what the city is dealing with. Presidio Bay bought the 160,000-square-foot downtown office building for $40.9 million — a sharp drop from the approximately $107 million that seller Clarion Partners paid for almost a decade earlier. With the building’s assessed value tumbling more than 60 percent, the city lost tens of millions of dollars in taxable value. City officials had pegged 60 Spear at a $121.8 million valuation in fiscal year 2023. By fiscal year 2025, the assessment dropped to $41.8 million. As a result, Presidio Bay’s annual property tax bill fell to about $494,000, down about 65 percent from the more than $1.4 million Clarion paid in its final year of ownership.

Office properties account for approximately 17 percent of San Francisco’s property tax base. Under California’s Proposition 13, assessed values can only rise 2 percent annually unless a building changes hands. When properties sell below their assessed value, the reset locks in a lower tax base that may take decades to recover from.

Other downtown office buildings are selling below their peak-era valuations and prior tax assessments, trading at $200 to $400 per square foot. City officials say general fund property tax revenue fell almost 0.9 percent in the fiscal year ending June 2025 and has grown less than 2 percent in three of the past five years, according to the Business Times. In the past, property tax reliably climbed at or above the 2-percent Prop 13 cap.

A surge of assessment appeals has only made the growing problem worse. The San Francisco Office of the Assessor-Recorder, which handles the appeals, is working through a backlog of thousands of requests. Before the pandemic, the office would typically receive around 1,400 appeals per year, San Francisco Assessor-Recorder Joaquin Torres told the Business Times. In fiscal year 2024, it received 8,000 appeals; the number increased to 9,000 in 2025, which Torres said is an “at least 25-year high.”

Mayor Daniel Lurie, for the time being, is planning to work with building and community stakeholders, as well as the Board of Supervisors, to deliver a budget that “prioritizes core services” including clean and safe streets.

“We are not simply going to do everything we were doing a little less well,” Lurie told the Business Times. “Together as a city, we are going to decide what we want to prioritize and deliver world-class services.”

— Chris Malone Méndez