Office rents on San Francisco’s California Street fall 31%

Record vacancy and discounted sale prices push down lease rates on business corridor

Peninsula Land & Capital's Roger Fields; 550 California Street (Loopnet, Linkedin, Getty)
Peninsula Land & Capital's Roger Fields; 550 California Street (Loopnet, Linkedin, Getty)

Office rents on San Francisco’s California Street are falling on a tide of discounted building sales.

The average asking rent for offices on California Street is $62 per square foot, compared with  $90 per square foot in 2020, the San Francisco Standard reported, citing figures from Cushman & Wakefield.

The drop in rents on the Financial District corridor comes as a result of record vacancy and divestment of office towers at fire-sale prices. The Standard called California Street “the city’s premier business address.”

Last summer, Roger Fields of Palo Alto-based Peninsula Land & Capital bought a 13-story, 355,000-square-foot office tower at 550 California Street for $42.6 million, or $120 per square foot, less than half what it was worth nearly two decades earlier.

The first building sold after a pandemic shift to remote work helped reset office prices — and rents.

Because of the low purchase price, rents at 550 California will be less than a third of comparable Class A offices in Downtown, a Peninsula Land executive told The Real Deal.

Fields said this week his firm had just inked nine new leases at the previously vacant skyscraper.

The new tenants come from a variety of industries, including professional services, hospitality and biopharmaceuticals. Together, the building will be nearly 20 percent occupied when they move in.

Once his firm can get the place at least half full, Fields said he’d like to see a restaurant on the ground floor. 

“That just means we’re going to have to do more transactions to fill it up,” Fields told the Standard.

Rather than a single large firm leasing an entire building ahead of anticipated growth or a unicorn funding round, Fields said he has noticed most tenants now in the hunt for new offices are small- to medium-size businesses. 

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And they don’t necessarily need an entire building or floor, but still want to be in the heart of Downtown. 

The new tenants include Core Hotels, Peak Technology Partners, Genedata, Kevala, Tobin Capital, Behmke Reporting and Video Services, law firm Miura & Partners, United Litigation Discovery and Optime.

Some 27 office towers containing more than 8 million square feet of offices flank California Street, according to Cushman & Wakefield. 

Of those, five buildings are more than 50 percent vacant, with six more heading that way if no new leases are signed. Meanwhile, at least 10 buildings are more than 80 percent occupied. 

All told, 33 percent of California Street’s offices are now vacant, and the overwhelming majority of those offices on the market are under 10,000 square feet. 

The overall office vacancy in San Francisco is 36.6 percent, according to CBRE.

Robert Sammons, senior director of research at Cushman & Wakefield, said because California Street is bookended with large “Tier 1 trophy” buildings, the street has a major impact on setting pricing for the overall market. 

To compete with the glut of available, often newer, offices in town, Fields said he has been flexible with rent terms — even signing a one-year lease if it gets a deal done. Traditionally, office tenants signing direct leases would commit to five- or 10-year terms. 

“Right now, we know we have the best value in town,” he told the Standard.

— Dana Bartholomew

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