The latest vote of confidence in San Francisco’s real estate recovery is the purchase of a prominent yet long-vacant office building in the heart of the city.
The uniquely shaped structure at 1128 Market St. is on a stretch of the city’s main commercial thoroughfare, fronting United Nations Plaza, that has long been known for shuttered storefronts and perceptions of crime. The building has stood unoccupied since even before the COVID-19 pandemic emptied office buildings and upended the economy.
On the other hand, it is walking distance to public transit, the main public library and City Hall. Arsicault Bakery, the beloved San Francisco patisserie, has an outlet nearby.
But perhaps the property’s biggest selling point was the price, said Paul Paradis of Bayhill Ventures. The firm recently paid $7.6 million to purchase the six-story, 79,000-square-foot building out of foreclosure — a roughly 85% discount from the $49 million it traded for back in 2018. In other words, it was a deal too good to pass up.
“The way San Francisco works as I’ve seen it over the past 35 years is if you have a high-quality building near major transit, it will be appealing to a wide range of companies,” Paradis, who worked for Hines for more than three decades before launching Bayhill Ventures in 2023, told CoStar News. He added that the neighborhood is “safer and cleaner” than it has been in years thanks to recent efforts by Mayor Daniel Lurie and other city officials.
“It’s a very good building that was taken care of extremely well and needs no additional investment,” Paradis said.
Better days
The building’s fortunes in recent years have loosely mirrored those of the city. When former owners Canyon Catalyst Fund and Rubicon Point Partners paid almost $50 million for the building in 2018, San Francisco’s tech boom was humming along, its office vacancy rate in the single digits. The investors aimed to turn the 1982 building into modern quarters befitting the young tech startups like Uber, Zendesk and Twitter, now X, that were then renting space in the neighborhood.
Builders in those days stuffed San Francisco's development pipeline with myriad proposals for luxury apartment towers, hotels and other projects aimed at capitalizing on what many expected to be the Mid-Market neighborhood's real estate turnaround.
A leasing brochure from 2019 billed the property — which had previously served as the longtime home for the now-defunct Art Institute of California — as a “rare full-building opportunity in the city’s most dynamic neighborhood.” It outlined plans for a new lobby and possibly a roof deck.
A few months later, the COVID-19 pandemic shutdown and the rapid rise of remote work emptied downtown San Francisco almost overnight, and the area around the Civic Center known as Mid-Market was hit harder than most downtown neighborhoods. Startups and retailers shut their doors as crime and street disorder surged.
East-West Bank took control of the building in 2023 after alleging in a lawsuit that its former landlords had defaulted on a $42 million loan the bank had issued when Canyon and Rubicon Point bought the property in 2018. The lawsuit was dismissed shortly after the duo transferred ownership of the building to the bank.
At one point, there were plans to turn it into a shelter for women experiencing abuse and homelessness; that fell apart for lack of funding, according to press reports.
'Lower Hayes Valley'
The Mid-Market office submarket has a vacancy rate of more than 28%, among the highest in the city, as of the second quarter of 2026. The neighborhood has for decades had a reputation as a troubled no-man’s-land, a reputation that worsened during the pandemic. Whole Foods closed its 65,000-square-foot store at Eighth and Market streets in 2023 after just a year in business. Numerous other retailers, restaurants and office tenants left in the aftermath of the COVID-19 pandemic.
The city’s overall office vacancy rate remains relatively high at almost 22%, but it has started to fall for the first time since the 2020 shutdown, when workers disappeared from the city center and companies dumped space at record speeds. The turnaround is largely linked to growing demand from artificial intelligence firms large and small.
JLL reported that AI companies accounted for nearly 40% of the city's leasing volume during the first quarter of 2026 and predicted that AI firms could double their square footage in the city from the current 7 million to as much as 14 million by 2030.
Startups in search of accessible downtown space at relatively cheap rents have historically turned to sections that are gritty but convenient, analysts say.
Certain AI startups and real estate brokers have already taken to renaming parts of Mid-Market as “Lower Hayes Valley,” said Chris Pham, a JLL senior analyst who tracks the sector. He predicted more companies would begin eyeing the neighborhood as rents continue to rise and space fills up in popular AI neighborhoods such as SoMa and Mission Bay.
“If you look at prior cycles, most of the demand originates in the core downtown financial district, close to the BART stations,” Pham told CoStar News.
Signs of hope
The rush of startups into the neighborhood has yet to materialize, but there are hopeful signs.
A business coalition in 2023 floated a plan called Market Street Arts that aimed to turn around Mid-Market, a historic theater district, using a mix of public and private money to help arts groups fill vacant storefronts and enliven public spaces. The nonprofit Community Arts Stabilization Trust and public radio station KALW last year bought the historic office building at 988 Market St., above the Warfield Theater, for $7.3 million, with plans to turn it into a hub for creative organizations, independent media professionals, artists and cultural workers.
Last year, a trio of German investors purchased the former WeWork building at 995 Market St., a 16-story office tower that traded for $62 million a decade ago, for around $10 million. They have since turned it into a “vertical village” called Frontier Tower, renting space to researchers in areas such as robotics and AI as well as hosting social activities from art projects to raves.
There is one other big, 1.2-million-square-foot reason for investors to feel hopeful about Mid-Market's long-term future.
San Francisco's once-celebrated nine-story mall, the city’s largest, finally closed in January, following a long, slow death that came to be a potent symbol of the city's post-pandemic decline. Last month, two San Francisco developers, Presidio Bay Ventures and the Prado Group, were awarded the exclusive right to purchase the shuttered San Francisco Centre for redevelopment.
Though no deal has been finalized, and any redevelopment of the shuttered mall remains in the preliminary planning stages, a sale and potential revival could symbolize a new chapter in the city’s economic recovery.
Real estate services firm CBRE marketed the vast downtown retail property as a “blank canvas” for some sort of mixed-use redevelopment project with homes, hotels, education and entertainment.
CBRE released a sales brochure for the city’s largest retail property, now called the San Francisco Centre & Emporium, after lenders took over ownership of the shopping center in a public auction on the steps of City Hall. The marketing materials pitched the 1980s-era mall, one of the largest multilevel urban indoor malls in the United States, as a “unique platform for large-scale reinvention.”