San Francisco is making it easier to turn empty offices into homes

San Francisco is making it easier to convert vacant office buildings into housing, a measure aimed at easing the situation in the city housing shortage and revitalizing the struggling downtown area.

Voters approved Proposition C, which offers developers a tax break transfer up to 5 million square feet of commercial space by 2030, according to last week’s election results. Mayor London Breed, who championed the proposal, said it will help the city comply with a state mandate to create this proposal tens of thousands of new homes and to diversify the city center.

The move comes as the technology sector, a key to San Francisco’s economy, has scaled back its presence and workforce since the pandemic. Major companies, such as Meta Platforms Inc. and Salesforce Inc., have reduced their real estate footprint, allowing employees to work from home or relocate. Commercial vacancy rates in San Francisco hit a record 36% from December and is expected to rise further this year, according to an analysis by CBRE Group Inc.

Breed said the initiative would help transform the city’s downtown from a 9-to-5 business district to a 24-hour mixed-use district.

“Downtown San Francisco is undergoing a period of change – and there is a tremendous opportunity to attract investment and excitement in the future of what downtown can be,” she said in a statement.

The announcement this month of Macy’s Inc.’s plan. to close its flagship Union Square store — part of the company’s broader national downsizing — marked another major departure from the city’s retail landscape.

Breed has been a vocal proponent of finding innovative uses of spaces, even suggesting last year that a football stadium could to replace the Westfield San Francisco Center mall downtown, after the owners gave up the property.

San Francisco stands out for its potential to convert office buildings into housing, compared with other cities, because of the buildings’ shape and size, ceiling heights and proximity to public transportation, advocates say.

In a reportAccording to the San Francisco Bay Area Planning and Urban Research Association, 40% of downtown buildings assessed by architecture and design firm Gensler would be suitable for conversion. In North America as a whole, only 20% of buildings rated by Gensler scored high in conversion.

However, San Francisco’s strict planning and building codes, along with high construction costs, pose significant hurdles to such projects, making many of them financially unfeasible.

Still, there are numerous technical challenges in converting offices to homes, and skeptics argue that the potential is overstated. According to a separate analysis According to Moody’s Investors Service, conversions to multifamily are only feasible in 13% of San Francisco offices.

To complicate matters further, a report by the Offices of the San Francisco Controllers and Economic Analysis Unit warns that increased office-to-residential conversion could lead to job losses and harm the local economy. The study’s 20-year forecast suggests that converting every 100,000 square feet of office space to housing could eliminate 155 jobs and reduce the city’s GDP by $49 million.

“The majority of job losses would be concentrated in the office sectors, which contribute heavily to the city’s GDP, while gains would be in the construction, government and local sectors,” the report said.

To date, there have only been a handful of office-to-residential conversions in the city, including a three-story building in the Tenderloin neighborhood that was recently converted into 56 apartments. One project to transform San Francisco’s historic Warfield Building was recently approved and construction is expected to begin early this year.