Investors Double Down on San Francisco Office Market

A stampede of investors is snapping up office buildings across San Francisco, sending deals so far this year almost equal to last year’s total sales.

Investors sank $1.7 billion in office building deals in the first half of the year, compared to $1.9 billion invested in all of last year, the San Francisco Business Times reported, citing preliminary second-quarter figures from Colliers.

The rush into offices has been led by institutional investors with growing confidence in San Francisco’s artificial intelligence ecosystem.

“There’s a good chance that we’ll surpass 2020’s volume, 2021 and even 2013,” Derek Daniels, regional research director at Colliers, told the Business Times.

“Capital markets activity is back, individual buildings are seeing much more activity and we’re seeing groups from outside the region that are interested, and larger institutions are showing interest in San Francisco again,” he said.

Recent deals include Strada Investment Group’s purchase of One De Haro, a 133,427-square-foot Showplace Square building fully leased to wireless networking company Samsara for $103 million, or $771 per square foot.

StartupHQ, a locally based office owner, manager and operator, bought a historic 100,000-square-foot office building at 55 New Montgomery in April for $20 million in April, or $200 per square foot.

At the same time, Centaurus Capital, Fenway Capital Advisors and The Meridian Group took ownership of a 640,000-square-foot tower at 415 Natoma after it bought the debt backed by the building for about $200 million through a deed in lieu of foreclosure valued just north of $300 per square foot.

Two of the biggest deals after the pandemic were done in the first quarter, when New York-based Madison Capital took control of a more than 606,000-square-foot tower at 45 Fremont for $265 million through a deed in lieu of foreclosure valued at $437 per square foot.

But the biggest sale of the year was Cypress-based Yoda PLC’s acquisition of the 750,000-square-foot Transamerica Pyramid complex for $691.6 million, or $922 per square foot. The deal included two adjacent office buildings at 505 and 545 Sansome St. and a $79 million fee paid to former asset manager Shvo.

The office price tags above $100 million suggest institutional capital is betting on San Francisco, compared to private-capital investors who bought up offices for steep discounts during the pandemic.

While office values are generally well below pre-pandemic prices, leasing from artificial intelligence companies is boosting the office market recovery, putting activity on track to hit a 30-year high, according to the Business Times.

– Dana Bartholomew