San Francisco office debt reflects optimistic waiting game

Commercial real estate debt origination in San Francisco rose 55.2% in 2024, compared to 2023. This was largely prompted by three rapid-fire rate cuts from the federal reserve in H2 2024, fueling activity for both sales and refinancing. However, the federal reserve has also tempered expectations for 2025 by lowering the expected rate cuts from four to two, which will likely suppress activity in the interim.

With a 214.7% increase in debt origination coming from refinancing opportunities, this indicates that landlords are hopeful in the office market’s recovery and are banking that their assets will appreciate in the future. Several of these refinancings were made with loans coming due in 2025, where landlords chose to pay down their loans and push out their financial obligations.

Sales increased 10.4% in 2024, remaining somewhat flat year-over-year. This reinforces the idea that existing landlords are optimistic that their assets will recover in the coming years and aren’t being forced to sell. However, the next few years will be pivotal and if cash-flow for the lower-tier of the market doesn’t recover, those properties will potentially be sold to investors looking for opportunistic plays.