San Francisco is advancing efforts to convert its surplus office space into residential units through a new tax incentive program aimed at easing financial risks for developers. With approximately 30 percent of the city’s 100 million square feet of office space currently vacant, officials see conversion as a key strategy to address the ongoing housing shortage and revitalize the downtown area.
Unlike other major cities such as New York, Washington, and Chicago—which have implemented tax breaks to encourage office-to-residential conversions—San Francisco had not offered similar incentives until recently. This year, the city enacted a law allowing developers to recoup a portion of future property taxes over 30 years on commercial properties transformed into housing. The program currently applies to projects in downtown neighborhoods, including the Financial District, South of Market, and Civic Center.
To date, three developers have submitted proposals under the new incentive. Among them is Emerald Fund, a local residential development firm, which plans to convert a midcentury office building into 106 apartments. Another applicant, Hudson Pacific Properties, a real estate investment trust managing 12.5 million square feet of West Coast offices and studios, intends to convert upper floors of a landmark 114-year-old building into 136 apartments.
City officials hope the incentives will jumpstart conversions on the estimated 30 million square feet of suitable office space. A 2023 study by planning and design consultants found many San Francisco offices are adaptable for residential use, leading the city to relax building codes and waive certain fees, including requirements for bike parking and open space. In March 2024, voters approved the elimination of property transfer taxes for buildings converted into housing, further lowering financial barriers.
Despite these measures, conversion projects remained limited as developers hesitated amid economic uncertainties. Meanwhile, the local housing crisis intensified; median rents for one-bedroom apartments surged over 25 percent year-over-year by September 2026, driven in part by growth in the artificial intelligence sector.
Marc Babsin, president of Emerald Fund, estimated that the combination of tax incentives and regulatory relief could reduce development costs for conversions by about 25 percent. However, he noted that these savings materialize only as increased property values generate higher tax revenues over time.
The office vacancy rate in San Francisco, although slightly improved, remains among the highest nationwide at 30.1 percent, according to Cushman & Wakefield. City planners envision increasing downtown residency to foster a vibrant urban environment beyond traditional business hours by integrating housing with retail, dining, and entertainment options. Jacob Bintliff, manager of economic recovery initiatives, emphasized the unique political support behind these conversion incentives, which stems from widespread concern about post-pandemic downtown conditions.
Developers also see broader potential in mixed-use projects. Steve Luthman, global head of real estate for the investment firm Hines, highlighted a planned redevelopment in the Financial District that combines office, residential, and retail spaces. He argued that without significant conversion efforts, isolated projects risk remaining disconnected from a dormant office core. Luthman noted that San Francisco’s willingness to encourage office-to-housing projects marks a strategic shift for a city historically cautious about development, potentially paving the way for more dynamic urban districts.