In the world of San Francisco real estate, a lot of the 2023 action will be in City Hall rather than at job sites.
With most housing and commercial development on hold due to economic forces and San Francisco’s slow pandemic recovery, the focus will be on policy changes needed to get projects rolling again, as well as the rezoning needed to give the city a chance to meet its state-mandated housing goals of producing 82,000 units by 2031.
San Francisco has fallen a long way from the pre-pandemic days when the city had among the nation’s highest office rents, lowest vacancies and housing developers were making huge bets on the city, chasing the high-incomes generated during the tech boom.
The city has always been a boom-and-bust town, so there is little doubt that, eventually, San Francisco will bounce back. The only question is when.
With that in mind, here are eight trends or milestones in housing and real estate development we will likely see in 2023.
The housing element is only the beginning
Come mid-January, the San Francisco Board of Supervisors will somewhat begrudgingly pass the “housing element,” the state-mandated plan for how the city is going to meet its lofty goal of producing 82,000 housing units, 46,000 of which must be affordable to low- and moderate-income families.
That vote will kick off an unprecedented rezoning which will aim to increase heights and densities on some of the west side’s busiest transit corridors. Streets like Taraval, Judah, Ocean Avenue and Lombard could see zoning rise to accommodate 65-foot buildings, while 85-foot buildings could be permitted along some stretches of West Portal, 19th Avenue and Geary Boulevard.
The planning commission is a sleepy place these days, with very few new projects coming in for approval. But the rezoning will keep the panel plenty busy in 2023.
Few new market rate housing projects will be started
This year is shaping up to be a weak year for housing production — the city is on track to produce about 2,700 new housing units. Next year should be similarly slow: There are currently 4,756 units under construction. Roughly half of those will open up in 2023. That is a far cry from the 10,000 units a year that the city is supposed to produce under the housing element.
“I don’t anticipate projects to all of a sudden make sense — I wish I were more optimistic,” said Corey Smith, executive director of the Housing Action Coalition. “The projects that are stuck are going to continue to be stuck.”
At the same time, Smith thinks that the political climate has shifted so that a majority of the Board of Supervisors will be open to making changes — deferring fees or lowering affordable housing requirements — in order to allow private development make economic sense again.
But even if those changes are made, it will take a while before they have an impact.
“We could make some very smart changes in 2023, but it still will take time for the benefits to materialize,” said Smith.
Affordable builders will be busy
As The Chronicle reported last week, the value of land entitled for market rate housing has crashed. In an online auction, a site at 25 Mason St. entitled for 155 units attracted offers of a measly $5 million. That’s $33,000 per buildable unit. Before the pandemic, entitled sites were going for an average of $125,000 per buildable unit — and many fetched much more.
With the city on the hook to produce 46,000 affordable units over the next eight years, the Mayor’s Office of Housing and Community development, and its nonprofit partners, are going to need to be aggressive in acquiring development sites.
Already one group has taken advantage of the soft land values. Sequoia Living recently was able to grab a site that can accommodate 275 units at Valencia and Cesar Chavez streets in the Mission District. Sequoia Living plans to build 130 units of low-income senior housing on half the parcel, and on the other half Mercy Housing will put 145 units of supportive housing for formerly homeless adults.
A view of downtown San Francisco and AT&T Park can be seen through the partially constructed walls of Visa’s future headquarters at the site of Mission Rock, a mini-district being developed by the Giants in partnership with Tishman Speyer on China Basin in San Francisco.
Jessica Christian / The Chronicle
Phase one of Mission Rock will open
The San Francisco Giants have had a rough stretch of late — losing slugger Aaron Judge to the New York Yankees and then allowing shortstop Carlos Correa to slip away to the New York Mets after a dispute over a physical exam.
But, on the other side of Lefty O’Doul Bridge, things are going a lot better.
There, on 28-acres of asphalt that has long provided game day parking for Oracle Park, the Giants and their development partner Tishman Speyer are completing phase one of their Mission Rock development, which will eventually have 1,200 new homes, up to 1.7 million square feet of office space, 150,000 square feet of retail or entertainment, eight acres of public parks, parking for 3,000 vehicles and the rehabilitation of Pier 48.
Phase one will include three buildings that will open in 2023. The first is Visa’s new headquarters, a 13-story tower with about 283,000 square feet of office space and 16,000 square feet of retail. Next to finish will be Building A, a 23-story mixed-use tower with 282 apartments, 103 of which will be below market rate. Finally, a 272,000 square foot biotech building will also go online.
Pedestrians walk past empty storefronts along Powell Street at Union Square in San Francisco in 2022.
Jessica Christian / The Chronicle
Union Square will continue its comeback
The holidays were good to Union Square this year and that momentum should continue into 2023. A year after the shopping district made national news for a string of lootings, Union Square saw several high-profile retailers gobble up space this year. Coco Republic, an Australian furniture brand, took over the old Crate & Barrel space at 55 Stockton and Chanel purchased a building at 340 Post St. for $63 million.
That roll will pick up pace in 2023, according to Union Square Alliance Executive Director Marisa Rodriguez.
At 100 Stockton St., the old Macy’s mens store, which has been empty since the outlet was shut down a few years ago, has landed two major tenants: The event space start-up Convene will move into 65,000 square feet while high-end Puruvian and Japanese restaurant Chotto Matte is opening on the rooftop. Nearby, Rolex is building out a stand-alone store on Post Street.
Meanwhile, the Union Square Alliance will be working with city planners to see what changes can be made to city codes to make it easier and faster to convert empty office buildings into housing.
Union Square is still in recovery mode — foot traffic is still down 72% from pre-pandemic times and vacancy rate is still over 30%. But things have come a long way from a year ago when luxury store lootings attracted national attention and kept many shoppers away.
“There is a lot of buzz going into 2023, I’m feeling some positive energy,” said Rodriguez.
IKEA is coming, IKEA is coming
For those of us who can’t afford a Rolex, perhaps the most exciting retail news of 2023 will occur at 945 Market St., just south of Union Square. There, in a 250,000 square foot building that has been empty since it was completed six years ago, we will see the grand opening of an 87,000 square foot Ikea, along with other retailers, restaurants and entertainment.
The project is being developed by Ingka Centres, an affiliate of IKEA. The mall will be branded as Livat, a Swedish word which translates as “lively happening” or “bustling gathering.”
So far, the company has been guarded about other tenants that will move into the 250,000 square foot shopping center, which has been vacant since it was completed in 2016. The IKEA is slated to occupy 87,000 square feet and 47,000 square feet of the building is zoned for office space. Rumored to be looking at space in the building are miniature golf chain The Puttery and the co-working group Industrious.
Supervisor Matt Dorsey, who represents SoMa, said the Livat project is “potentially a really important groundbreaking innovation in the future of retail.”
“Obviously rumors of the death of retail is greatly exaggerated,” he said. “I’m especially intrigued to see what the Livat model will be — a mix of placemaking and co-working, and redefining how people shop and gather.”
San Francisco will lag behind the suburbs
Developer Eric Tao, of L37 Partners, said he is more optimistic about development in the suburbs than in San Francisco proper.
Tao is hoping to start construction in 2024 on an 800-unit project in South San Francisco, whereas the project he has entitled in San Francisco is likely more of a 2025 or 2026 start.
“San Francisco kind of fell from such a high perch. You always measure where you are by where you were,” he said. “Getting back to that level is a long way to run up. It won’t be for many more years before we are there.”
Housing Action Coalition Executive Director Corey Smith said the lack of new development applications coming in is troubling. The Housing Action Coalition reviews new proposals all over California.
“We are seeing proposals from Peninsula, proposals from Los Angeles, proposals from the South Bay, proposals from Berkeley, proposals from Sacramento,” he said. “We are just not seeing any from San Francisco.”
More pain for the office market
San Francisco has 27.1 million square feet of office space available across the city, a record high, according to the brokerage CBRE — that is more than 20 Salesforce Towers worth of space.
Ken Rosen, chairman of the Berkeley Haas Fisher Center for Real Estate and Urban Economics, said that San Francisco will likely continue to lose population. The combination of quality of life issues and the persistence of remote work will continue to make it difficult for the city to attract businesses and workers. He cited a study that 31% of Bay Area workers want to be fully remote.
“That means a less demand for residential space because people don’t have to live here,” Rosen said.
Office vacancy, already over 25%, will likely continue to rise. “Even the space that is leased is only 40% occupied,” he said. “I think it’s very possible that the value of the office building may be down 40% — that could have implications for property tax collection and force the city to cut services, which could have a spiraling effect.”
Robert Sammons, Research Director of Cushman & Wakefield, said he expects the first half of 2023 to resemble the last six months of 2022: more sublease space will come on the market. Tenants will have the pick of the litter and will generally gravitate toward the nicest downtown buildings with the best views.
“Anyone looking for space is wanting the best of the best to woo their employees back to the office at lest part of the week,” said Sammons.
J.K. Dineen is a San Francisco Chronicle staff writer. Email: jdineen@sfchronicle.com Twitter: @sfjkdineen
