Empty Offices Are Dragging Down San Francisco Home Prices 

When asked about a recent Axios article proclaiming a broad “collapse” in housing prices nationwide—complete with the scare quotes—Patrick Carlisle, a Bay Area market analyst for real estate firm Compass, had a similarly strident retort.

“It’s a bullshit story,” Carlisle said. “A collapse is what happened post-2008, where some Bay Area counties saw declines of up to 60% in their housing prices.”

What isn’t bullshit? That San Francisco’s housing market is cooling faster than the rest of the region after reaching feverish highs during the pandemic. And low demand for office space is dragging down housing prices further. 

Ted Egan, the city’s chief economist, alluded to this fact in a Nov. 16 presentation about the massive fiscal hit San Francisco is facing from empty offices. The pain won’t stop at office buildings, he said. 

“If anything happens to the office sector, it ripples throughout virtually every aspect of the city's economy,” Egan said. “Office demand drives housing demand, and if you look at San Francisco housing prices in context, they’ve seen much less growth than virtually everywhere else in the United States.”

Empty Condos

Signs of that ripple effect are already showing up in real estate data. 

Carlisle said on the Market Street corridor, where housing demand is intertwined with downtown office work, prices for two-bedroom condos are down around 16% year-over-year. That’s more than double the 7% decline seen by homes citywide. 

“That area has been the big center of condo development for the last 30 years, in part because it’s basically the only place you can build a high-rise in San Francisco,” Carlisle said. “Home prices there have been hit harder probably than nearly anywhere else in the country.”

San Francisco is also unique among large cities in that average rents are still lower than they were pre-pandemic. Office workers have been slower to return in person compared to peer cities. 

What’s more, a recession could hit the tech-centric San Francisco Bay Area harder than most. That’s because tech companies—which have relied on a decadelong flow of cheap capital—are more sensitive to a higher interest rate regime.

“Tech was basically providing a hose of money into the land values of the Bay Area and then with remote work that hose is spraying more evenly across the country,” said Daryl Fairweather, the chief economist at Redfin. “Now with the weak tech sector, the water going into that hose is weaker, too.”

‘Sustainable Growth’ 

Fairweather said that the end of the tech boom should press city leaders to focus on livability as a driver of home values and demand. That, coupled with a potential boost in housing supply through streamlined policies, could mean “more sustainable growth.”

“Remote work makes what’s happening now more of a long-term trend than a short-term trend,” Fairweather said. “If it wasn’t for remote work, the downturn of the tech sector would have still hurt the real estate market, but it would have bounced back as soon as the industry bounced back.”

Mark McHale, a real estate broker with Vanguard Properties, said that higher interest rates are turning off buyers and leaving homes sitting on the market for longer. 

McHale added that tech layoffs have served to dry up the pool of first-time buyers that typically buy condos close to downtown. Sales in the category have “trickled down to almost zero” outside of a few exceptions, according to McHale.

Still, McHale is confident that cyclical patterns are just that. He’s holding out hope that recent interest rate declines will continue and the housing market will start to bounce back next February.