SF Launches Office-to-Housing Initiative
San Francisco has launched a new tax district to incentivize the conversion of vacant downtown office buildings into housing. The initiative, led by Mayor Daniel Lurie, aims to revitalize the city's core, which has been impacted by high vacancy rates from remote work. The effort's success may be complicated by statewide property tax measures that could affect city revenues.
- The new Downtown Revitalization Financing District will provide eligible conversion projects with annual incentive payments for up to 30 years. These payments are funded by the future increase in property tax revenue from the converted buildings, meaning the program does not affect the city's current revenues. - This initiative follows four years of previous efforts to spur conversions—including cutting fees and relaxing zoning restrictions—which failed to produce a single completed project among the city's 30 million square feet of vacant office space. - Projections for the new program estimate that approximately 50 properties are suitable candidates for conversion, which could create 4,400 new residential units and house more than 7,000 new residents downtown. - The city's office vacancy rate was reported to be between 25% and 33% at the end of 2025. While still high, this is a slight improvement, driven in part by a surge in leasing from AI companies. - This tax district is not the only financial incentive available; in March 2024, San Francisco voters passed Proposition C, which waives the city's real estate transfer tax—a rate that can be as high as 6%—for qualifying office-to-residential conversion projects. - The new financing model is inspired by a similar tax incentive program in New York City that resulted in the creation of over 12,000 new housing units in lower Manhattan. - One project, the conversion of the Humboldt Bank building at 785 Market St. into 124 units, is now expected to proceed due to the new financing district once its current short-term office leases expire. - The initiative is a key component of Mayor Lurie's broader "Heart of the City" plan, which aims to transform downtown into a round-the-clock neighborhood by also improving public safety and activating public spaces.
