San Francisco officials have pulled yet another lever to convince developers to turn some of the city's empty office space into housing.
Mayor Daniel Lurie's latest sweetening of the pot is a law he signed late last week establishing a special financing district to support such projects.
The Downtown Revitalization Financing District aims to help fund conversion projects across a large swath of San Francisco’s commercial core by offsetting development costs for eligible projects through annual incentive payments over 30 years. The payments are backed by future property tax revenue generated by the properties once they become apartments or condos.
“Downtown’s economy is in a new phase of opportunity that calls for focused and innovative strategies to support its momentum, and this new financing district for commercial-to-residential conversions is the final critical piece to achieve that," the mayor said in a statement.
The legislation has been in the works since last spring. It's the final step in a series of moves the city hopes will together promote the creation of thousands of housing units through conversions over the next several years.
"Our administration is accelerating downtown's recovery by activating our public spaces, prioritizing safe and clean streets, and creating a downtown where people live, work, play, and learn," the mayor said, adding that the city has already heard from interested investors.
The right mix
Even as the much-hyped artificial intelligence boom has powered a rebound of downtown San Francisco offices, with net absorption turning positive last year and rents finally stabilizing after years of decline as leasing momentum gains steam, the city still has around 42 million square feet of empty office space, according to CoStar.
City planners believe that only a handful of buildings have the right guts to take advantage of the conversion incentive program — mostly older buildings with operable windows and small enough floorplates to ensure that bedrooms and living areas have access to natural light.
In a 2023 analysis, global architecture firm Gensler pointed out that some features that have rendered some older office buildings "obsolete" for 21st-century office use would be strengths for potential homes. For example, a low, 12-foot ceiling typical of a Class C office building, without things like office ducts and lighting, could create luxurious 11-foot clear heights in a residential building.
It's not for lack of trying that San Francisco has not seen a single significant office-to-residential conversion project in more than a decade.
The new incentive district is part of a concerted effort by the city to solve a quandary that’s central to many of the challenges plaguing San Francisco’s commercial center in the post-COVID-19 era: The city has plenty of empty office space and not enough housing.
The city moved in February to remove most city-imposed fees for such projects — particularly San Francisco’s so-called inclusionary housing fee — that developers said were preventing such projects from penciling out. The measures cap more than three years of efforts by city leaders to provide incentives and remove barriers to office-to-residential conversions, which were also central to former Mayor London Breed’s efforts to revive the city’s economically troubled downtown.
Dashed hopes
A historic Market Street building that was supposed to become the first such project of the post-pandemic era instead sold to a nonprofit to house artists and other creatives, and the planned conversion of the Humbolt Bank Building at 785 Market St. into 124 homes by Forge Development Partners has stalled despite a groundbreaking event in early 2024.
That is largely because the math behind office-to-residential projects is challenged in San Francisco, as residential rents are still not lucrative enough to cover the outsized costs of such projects.
San Francisco’s Emerald Fund, a developer, a decade ago repurposed 100 Van Ness Ave., a 1974 office building on a main commercial thoroughfare, into more than 400 apartments. The firm’s president, Marc Babsin, last year told CoStar News that rising interest rates and construction costs meant the project would cost some 70% more than it did a decade ago.
On the other hand, San Francisco rents have been climbing faster than anywhere else in the nation over the course of the past year. Rents rose more than 6% in 2025, reflecting the combination of expanding tech hiring and very little new inventory, making for one of the tightest rental environments in the country.
Despite leading the nation in office vacancies and housing unaffordability, San Francisco has lagged behind other U.S. cities that have been successful enabling such office-to-housing conversion projects, such as Washington, D.C., Los Angeles and New York, which have hit on creative ways to overcome structural and financial barriers to repurposing commercial property into living spaces.
"This is modeled after programs that have already worked in cities like New York and Boston," said city Supervisor Danny Sauter in a social media video of the mayor signing the new measure into law. "It's the next step in our downtown comeback."
San Francisco is supposed to build 82,000 housing units by 2031 as part of its plan to meet state-mandated requirements to help solve California’s housing shortage. But despite a slew of measures that are supposed to result in more housing development, the city has completed only a fraction of the goal of 10,000 new units per year set by state officials.