San Francisco office cap meets record run of 100,000-square-foot leases

San Francisco is on track to break its previous record for office leases over 100,000 square feet in 2026, CBRE's Colin Yasukochi told The Real Deal. Twenty such leases have already closed and nine are pending, a total expected to exceed 2018's record by 1.1 million square feet.

Yasukochi said a heavy count of six-figure leases is usually an indication of new development potential, because tenants that large tend to want a full building to themselves. He anticipates a wave of new construction next year, particularly downtown and in Mission Bay.

Standing in the way is the Office Development Annual Limitation Program, approved by voters in 1985, which caps square footage allocated to new office construction. The program aimed to keep new development at a manageable rate and guard against boom-and-bust cycles, according to the Planning Department's website. It once allocated 950,000 square feet a year, with 75,000 square feet designated for projects under 50,000 square feet. A 2020 amendment tied the allotment to affordable housing production, which the city is far behind on, shrinking the annual square footage significantly.

A rollover policy has kept the program afloat: unused square footage carries into the following year, and the post-pandemic lull in office demand meant allocation went unused and the pool filled up, The Real Deal reported. The report says San Francisco appears to be the only major U.S. metro with limits down to the square foot.

The cap has already created a roadblock for a downtown office tower proposed by a joint venture of Los Angeles-based McCourt Partners and Dallas-based Lincoln Property Company, according to the report. The project would use up the city's available development square footage.