Managing San Francisco Commercial Real Estate Property Taxes in an Ongoing Downturn

San Francisco Market Sees 7th Consecutive Quarter of Negative Net Absorption

By: Ian Doss | Director of Property Tax – West Region

It is no secret to San Francisco commercial real estate owners and investors that the market continues to struggle in a post-pandemic environment. Moreso than other classes, COVID has shifted the office landscape dramatically. In San Francisco specifically there is ongoing promotion of remote work, hybrid office models, and an overall downshift in office footprints for an increasing number of companies. As real estate values are continuing to rise, and the remote-first workforce doesn’t require significant office space, investors and owners of office properties find themselves in a no-win situation.

As a result of high commercial real estate values, and subsequently property taxes, there continues to be a mass exodus of businesses of all kinds leaving San Francisco, and often California altogether. San Francisco has had its seventh consecutive quarter of negative net absorption, with almost -2.85M sq. ft. of space year-to-date. Vacancies also continue to climb, and currently sit at 26.8% city-wide as commercial real estate owners and investors navigate how to manage the new normal in this market.

Real estate owners aren’t the only ones who are managing the unknown accompanied by this new market. Unlike the 2008 financial crisis where property values fell and the market crashed, the pandemic has created a new normal for real estate owners and investors, which has in-turn created an unprecedented dilemma for the county Assessor’s. Never has there been a mass exodus from San Francisco that has caused such a change in the market. While the Assessor’s across the state have held firm that this “new normal” is temporary, the amount of time lapsed and continued shift will soon force Assessor’s to reduce values in San Francisco and across the state. These factors provide experienced property tax partners like Invoke a window of opportunity to step in and massively reduce assessed values for their clients.

Commercial Real Estate Appeals in San Francisco

Commercial real estate owners and investors, especially those of office buildings in San Francisco, are undoubtedly feeling the effects of declining rental rates, loss of tenants, and falling sales prices. As it stands, with property owners paying large property tax bills based on higher than market assessed values, appealing these property values is becoming critically important. While California has some protections in place with Proposition 13, which limits annual value increases to 2% a year, San Francisco property owners should still be looking for relief as there is a unique opportunity available to find property tax savings.

Invoke Tax Partners’ hand-picked and highly specialized California team has over 75 years of combined experience in San Francisco and throughout the state. We have helped numerous owners fight the county assessor and lower their property values, leading to significant property tax savings and refunds.

The market in San Francisco is experiencing generational changes that present a unique opportunity for commercial real estate owners. If you own property in San Francisco, your appeal strategy should be accounting for the unprecedented mass exoduses taking place. Invoke Tax Partners highly recommends partnership with an experienced commercial real estate property tax consulting team to ensure your appeal strategy is sound and will deliver the level of results your properties currently have available. Contact our San Francisco office today for a complimentary desktop review of your San Francisco portfolio.