Is a cure for downtown San Francisco’s persistent office vacancy problem the ability to record a podcast with a fancy cocktail in hand?
The owners of 525 Market St. are spending more than $20 million to find out.
The seventh floor of the office tower is the newest front in San Francisco’s office amenities arms race. A space once occupied by Sephora is now a private lounge exclusively for tenants, the Cove, which has a luxury fitness center, a hidden speakeasy, catering by Wolfgang Puck, private event areas, and a podcast studio.
Three years ago, when the building’s owners, the New York State Teachers Retirement System and DWS Group, saw that half their leases were set to expire, they started thinking about ways to elevate the property in the market, said J.D. Lumpkin, a broker at Cushman & Wakefield who is the leasing agent.
By then, it was clear the city’s largest tech companies were cutting their office presence in half. Recovery, if it did happen, wasn’t just a matter of standing pat and waiting until things got better.
“Credit to this ownership for getting ahead of it,” Lumpkin said of the $22.5 million investment to renovate the 29,000-square-foot floor.
Rather than just building it and expecting people to come, the owners of 525 Market are paying $2.3 million each year to fully staff the floor and provide workers with concierge-level service. The common areas, coworking spaces, and meeting rooms are all operated by Industrious, while Puck will staff two workers at the cafe and market.
At the “wellness center” — which includes a full gym, a Pilates studio, a sauna room, massage guns, and a $20,000 CryoLounge recovery chair — three staffers from Kinema Fitness will be on hand to teach classes and provide personal training. It’s not free — tenants are charged $35 a month for access — but employers can pick up the tab as a perk.
Lumpkin said the ownership group expects the floor to pay for itself within three years through the gym, food and beverage sales, and rental fees for the podcast studio and meeting rooms.
“Companies these days are really attracted to the idea of having an off-site type of place on-site,” he said, as he walked up to a wall in the corner of the room and opened a secret door to reveal the Oak Room, a speakeasy styled like a jazz club with a vinyl record collection.
Tenants are already lined up. Law firm Goodwin Proctor relocated from Three Embarcadero Center in January to take floors 31 and 32; other new tenants recently signed on for 70,000 square feet in the 38-story building, Lumpkin said. One of the main tenants is Amazon, which occupies nearly 40% of the property and requires most workers to be in the office five days a week.
Coincidentally, the New York State Teachers Retirement System purchased 525 Market for $22.5 million in 1998. In 2020, it brought on DWS as a partial owner. The name for the Cove came from the land beneath the tower, which was the Yerba Buena Cove before it was filled in to form what is now Montgomery Street.
According to Cushman & Wakefield, San Francisco’s office vacancy rate clocked in at 34.7% at the end of the first quarter. In the current real estate cycle, with tenants spoiled for choice in signing new leases, the properties that have remained competitive are either brand-new or upgraded with amenities.
When software company Databricks opted to move and double the size of its headquarters, it chose One Sansome for its ground-floor public space and restaurant, among other factors. Other companies like Strava, Morgan Lewis, and Notion made similar moves this year.
New office owners are following suit. Presidio Bay Ventures, which in 2023 purchased an 11-story office building at 88 Spear St. at a steep discount, is spending millions renovating the property to include a spa with sauna rooms and various pools for floating and plunging.
Mayor Daniel Lurie is a proponent of zhuzhing up office buildings with perks as part of a downtown recovery plan. He worked with Supervisors Danny Sauter and Bilal Mahmood to introduce legislation to streamline the permitting process for retail-to-office amenity conversions.
“I’m not going to dictate whether or not you should be in the office, but I want you to feel like you want to be here,” Lurie told a crowd at the Cove’s opening reception.
Then he repeated a slogan that has become common in real estate circles: “In order to have fun downtown, you need to be able to live, work, and play all in one place.”