Interest in trading real estate properties in San Francisco is finally showing real signs of recovery after the pandemic-induced slowdown, with activity picking up especially for high-value assets. This trend is underscored by a new report from the city's Controller's Office, which now projects real property transfer revenue for the 2024-2025 fiscal year (ending June 30) to reach $229.6 million. This would represent a significant 29.2 percent increase compared to the previous 12 months.
Notably, real property transfer transactions for assets valued at more than $10 million are forecast to reach around 70. That's a significant improvement from a post-pandemic low that San Francisco recorded in fiscal 2022-2023, when only about 55 were recorded.
However, transactions for the fiscal year 2024-2025 remain low compared with pre-pandemic levels. Data for the Comptroller's Office shows that all but one period on record, which dates back to fiscal 2010-11, posted transactions of at least 100. That was in 2010-11 when real property transfer transactions were only around 30.
In the first quarter, several major commercial real estate transactions took place in San Francisco’s office sector. The most notable was the sale of 33 New Montgomery Street, which fetched $76.3 million, according to a report from Cushman & Wakefield. This was followed by the sales of 450 Sansome Street for $47.5 million and 351 California Street for $36 million.
Meanwhile, real property transfers below $10 million (tax tiers 1 through 4) are expected to fare worse than in pre-pandemic times but are expected to begin recovering from the FY 2023-24 low.
The Controller’s Office report also highlighted several other key points for San Francisco. Notably, the projected general fund has improved by $53.9 million compared to the March forecast, reducing the estimated two-year budget shortfall from $817.5 million to $781.5 million. However, the city’s auditor cautions that ongoing economic uncertainty could still pose risks to these projections.
Additionally, the Controller's Office noted that office vacancies remained high in San Francisco, at 35.4 percent, as of the fourth quarter. That could have rippling effects through CRE as a whole.
"This dynamic is expected to decrease commercial real estate values," warned the Controller's Office.
"Exacerbating this structural change in where and how people work is the elevated interest rate environment, which increases the cost of borrowing and dampens real estate investment. Additional factors include credit availability, borrowing costs, foreign capital flows, and the relative attractiveness of San Francisco real estate compared to other investment options."
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