The San Francisco commercial real estate market appears to have reached an inflection point, with industry professionals reporting increased transaction activity and renewed investor confidence after years of pandemic-driven challenges. Market participants are describing a shift from distressed conditions to opportunistic buying, signaling what many believe marks the beginning of a recovery cycle.
Cameron Baird, Senior Vice President at Kidder Mathews, has witnessed this change firsthand through his two decades in San Francisco commercial real estate. Having recently joined the firm from Avison Young, Baird brings extensive market knowledge spanning multiple economic cycles.
“We’ve definitely skipped off the bottom,” Baird observes. “Since January, we’ve seen increased momentum. We’re seeing people that are all of a sudden opportunistic. They don’t want to miss the rising tide, and are hopping on their surfboard to try to ride the wave up.”
A Different Kind of Market Correction
Unlike previous downturns that primarily involved pricing corrections, the pandemic-era adjustment has been more complex due to fundamental changes in how people work. The widespread adoption of remote work technology has created lasting impacts on office demand patterns.
“Normally, there’s a pricing correction and everything goes back to normal. But this one has been different because people have really learned how to work remotely,” Baird explains. “Going into the pandemic, I was probably the worst person at operating Zoom or Teams. Now it’s old hat. Everyone has it on their phones.”
This technological shift has slowed the return-to-office timeline compared to previous recovery cycles. However, recent data suggests momentum is building. Downtown restaurant clients report sales volumes approaching pre-pandemic levels, while office leasing activity has picked up in recent months.
Geographic Variations Within the Market
Recovery patterns vary across San Francisco’s submarkets. While the Financial District and Union Square continue to face challenges, other areas have already returned to pre-pandemic performance levels.
“Fisherman’s Wharf has retailers doing pre-pandemic numbers, and they have been for a year,” Baird notes. “Other parts of the city, and certainly the suburbs and the overall Bay Area, have already recovered. It’s just these core areas like the Financial District and Union Square that are still figuring everything out.”
The office sector has benefited from what Baird describes as a “flight to quality,” where tenants have been able to upgrade their locations due to increased availability and competitive pricing. “Tenants have been able to trade up from Class B to Class A space, or Class C to Class B space with better amenities, at almost the same economics or better.”
Investment Activity Accelerates
The deployment of previously sidelined capital has become increasingly evident. Large office properties are trading at significant discounts to replacement cost, attracting both local and institutional buyers.
“You’re talking about big office projects trading from $200 to $400 per foot, well below replacement cost,” Baird explains. “Some of these deals are getting $36 rents on as-is deals. Larger funds with cash can buy something at a really low basis, sit on it for five years, and probably double their money.”
The competitive environment for distressed assets has intensified. A recent pursuit of a Union Square-area property with a $13 million note, expected to trade at $7-8 million, ultimately saw the lender decide to hold rather than sell due to multiple aggressive offers.
“The distress is not so distressed anymore,” Baird observes. “Every one of the large towers going for discounted prices has multiple offers. It’s not like there’s one buyer, there’s multiple rounds, and everybody’s aggressively competing.”
Local Knowledge Advantage
Much of the current investment activity involves local players leveraging their market expertise to move quickly on opportunities. Family offices and regional investors are particularly active, often able to deploy capital faster than institutional players.
“There’s a lot of local players that are really dipping in because they know this market,” Baird says. “Those folks are taking advantage of their market knowledge and awareness of what’s happening, being here to deploy capital faster than institutional capital that’s not local.”
A notable example is designer Jonathan Ive’s campus development in Jackson Square, where aggressive acquisition pricing of $1,800 per square foot reflects strategic assembly goals rather than individual building valuations.
The Union Square Question Mark
One significant uncertainty remains the fate of the Westfield San Francisco Centre, the large mall adjacent to Union Square. The property’s future direction will likely influence broader Union Square recovery patterns.
“Nobody really has a good plan,” Baird acknowledges. “There’s been ideas like soccer stadiums, student housing, or college campus use, but it’s an extremely expensive investment. You’re talking about a huge, million-square-foot project.”
The challenge lies in the property’s scale and cost basis. “You can’t just scrape it, you’re throwing good money after bad. Your land basis becomes negative instead of zero. You have to figure out how to recook this.”
AI Sector Driving Demand
Artificial intelligence companies have emerged as a significant demand driver, with several pursuing large office footprints in the city. While not yet at the pre-leasing levels seen during previous tech booms, the sector’s growth represents a positive momentum shift.
“There’s a lot of AI activity in the city. Obviously, everybody’s seen the headlines on these large footprints that some of these AI tenants are chasing,” Baird notes. “In the old days, big companies like Salesforce would pre-lease buildings a year out. We’re not there yet, but there’s certainly a shift in momentum.”
Quality Commands Premium
Despite overall market softness, premium properties continue to achieve strong rental rates. Class A spaces with desirable features like water views are setting new benchmarks.
“Quality space is commanding premium rents,” Baird explains. “Some projects in the TransAmerica building are getting $200 rents on smaller floor plates. This is the tone and momentum that quality space is achieving.”
Political and Messaging Shifts
The change in city administration has contributed to improved market sentiment. New policies focused on business-friendly approaches have helped counter negative perceptions that persisted beyond actual market conditions.
“For a long time, San Francisco’s biggest problem was a PR problem,” Baird reflects. “When you talk to people going downtown for work in the last year and a half, downtown’s busy. Since the administration changed, getting the messaging out that San Francisco’s open for business has made a difference.”
Looking Forward
For investors considering San Francisco opportunities, Baird sees current conditions as favorable for strategic deployment. “For folks that are maybe hesitant about San Francisco, I don’t think you need to worry. We’re an international city, and San Francisco is always going to return.”
The pricing reset has created opportunities for those willing to act. “There is going to be a price reset on some of this stuff. Rents have gone down on the broad spectrum of office product, but it’s all going to come back. The people that have grabbed up deals now are going to enjoy the rise.”
As market fundamentals continue improving and investor confidence returns, San Francisco appears positioned for the next phase of its recovery cycle. The combination of discounted pricing, renewed leasing activity, and strategic capital deployment suggests the market has indeed moved beyond its bottom, creating opportunities for those ready to capitalize on the city’s long-term prospects.
