Ask about San Francisco’s office market, and your answer will likely involve faltering demand, rising vacancy, or free-falling prices. While true that many financial district buildings are suffering record vacancy rates and expected loan defaults, this narrative misses a little-discussed demand shift that has gripped the post-pandemic market. Over the past years, dozens of businesses have been fighting for office space in a small corner of the city known as Jackson Square.
Until recently, Jackson Square had been a side dish to San Francisco’s prime Fidi towers. It was known to host small private equity shops and similar owner-occupied businesses amongst a neighborhood of historic low-rise brick buildings. The retail was primarily occupied by sleepy, design-oriented furniture and antique stores.
Starting with the thawing of the pandemic, the best amongst San Francisco’s elitist coffee brands opened flagship stores in Jackson, including Reveille, Blue Bottle, Post Script, and Mason Mio. The high-end coffee has been paired with what seems to be the relocation of Union Square boutiques to ground-floor spaces along Jackson Street and within the surrounding nooks and alleyways. Upstairs, VC firms such as Bain Capital and fintech companies like Ripple have been competing for space against law and tech firms relocating from traditional Fidi space.
Businesses have stated different reasons for their interest in the area. For law firm Gordon Rees, the relocation was an opportunity both to downsize and to build a more personalized, collaborative space. Another law firm, BraunHagey & Borden LLP, favors the “informal, relaxed and functional environment” of Jackson Square.
These businesses have been competing for limited space, with recent sales far above expected appraised values. In one notable deal, 535 Pacific Ave sold for nearly $60 million, an eye-popping $1,695psf. The buyer cited a personal attachment to the building, but also expressed confidence in a San Francisco rebound. While somewhat outside the thesis of this blog, we would also be remiss not to mention Shvo’s exceedingly bullish billion-dollar bet on Transamerica.
In some ways, moving to Jackson Square seems counterintuitive. While the buildings are loaded with ‘charm’ they lack the trappings of traditional class A structures. The floor plates are small and inefficient, accented by steel seismic braces in front of newly-exposed brick; many are walk-ups even lacking the modern infrastructure of an elevator; and there is no room for expansion. This is the bizarro world of class A office space.
That said, the area is small, tight, and understandable. It has hosted many of the private equity shops behind the screen of San Francisco’s historic successes. More PE firms moved to the area coming out of the pandemic, creating a hub of activity in an otherwise quiet downtown area. Other hedge funds, law firms, and high-paying businesses joined the party. Make no mistake: these are not typical middle-income commuters that weighed whether their pay justified the commute.
The clustering of these businesses and retail stores into Jackson Square is a healthy Fidi microcosm. San Francisco is re-trenching itself into this small and historic corner and as businesses grow, new trends emerge (think AI?), and commuters start commuting, Jackson Square may later be seen as the springboard that reset San Francisco’s Financial District.