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City of San Francisco gets better rent deal as downtown flounders

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(The Center Square) – The city of San Francisco’s downtown has been devastated by the pandemic. And, now, the local municipality is taking advantage of that by signing a new lease that will save it money while office vacancy rates soar downtown.

The city of San Francisco dumped its former landlord and negotiated a better deal for 157,154 square feet of office space on five floors in downtown San Francisco. The city gets a rent credit the first year and the second year of the deal, rent is $523,846 a month. The deal was reviewed at the April 23 board of supervisors meeting.

According to city documents, the city ended a lease with its

current landlord that was for 103,000 square feet. The city then looked for larger office space (157,154 square feet) so it could consolidate its Civic Center assets with the option to purchase “at a competitive price given market conditions.”

The city stated it got the deal because office space vacancy in the city is at 32% as of March 2024. By comparison, the cities of Los Angeles (27%), Austin, Texas (23%), Seattle (22%), and New York (18%) had lower rates. San Francisco’s office space vacancy was at 5% in December 2019 before the pandemic hit, according to a city report.

City staff gave their take on the state of downtown in a report to the Board of Supervisors.

“As a result of the global pandemic and sheltering in place, there has been a dramatic shift towards remote work and telecommuting in San Francisco and elsewhere resulting in an approximately 33% vacancy rate in the downtown San Francisco office market,” the report stated. “The persistent office vacancy rate has forced landlords to reduce their rent rates in order to attract and retain office tenants. … The price to purchase office buildings in the City has also dropped dramatically as owners of empty buildings are forced to sell at a discount or turn the keys over to their lenders to avoid foreclosure.”

Earlier this week, S&P Global Ratings downgraded the city of San Francisco’s outstanding general obligation and appropriation debt from stable to negative and cited the “high office vacancy rates” as a contributing reason.

The city of San Francisco said it has long understood the importance of a vibrant downtown.

“San Francisco’s Downtown has historically been a job center for the entire Bay Area,” the city stated on its website. “The thousands of offices concentrated there employed hundreds of thousands of workers, from both the city and the surrounding communities. Prior to the pandemic, nearly 470,000 people commuted to San Francisco for work from other places. Those offices and their employees created demand for various businesses, which generated revenue and created jobs.”

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