BPM recently hosted another insightful Real Estate Roundtable, bringing together industry leaders to explore current market dynamics and future opportunities. The event was held in BPM’s San Franciso office and led by Mark Leverette, BPM’s Partner managing the real estate practice. It featured distinguished speakers including Paul Single, managing director and senior economist at City National Rockdale, alongside developers and investment professionals from across the San Francisco Bay Area real estate sector. 

Economic outlook: Strength amid transformation

The roundtable opened with an encouraging economic assessment. Despite media narratives suggesting otherwise, the U.S. economy shows remarkable resilience, largely driven by consumer wealth and spending. The unemployment rate remains historically low at 4.2 percent, a level seen only twice since World War II. While inflation concerns persist, the overall rate has decreased substantially from its 9 percent peak, with current food inflation around one percent year-over-year. 

Notably, the U.S. economy has grown approximately 9.4 percent since the pandemic, significantly outperforming other major economies like the UK (2.3 percent), the EU (4 percent), and Japan (3.1 percent). This economic strength has particular implications for real estate markets, though the impacts vary significantly by sector and location.  

Office market: A tale of two cities

The San Francisco office market continues to face challenges, with vacancy rates around 30 percent. However, a dichotomy has emerged in demand patterns. Approximately 70 percent of current market activity is focused on spaces under 25,000 square feet, while larger transactions are primarily driven by AI companies and tech sector expansions. 

Premium properties continue to command strong rents, with some top-floor spaces achieving rates between $112-$140 per square foot. However, many buildings face significant challenges with loan maturities and refinancing gaps. This has created what one participant called “a market in transition,” with various neighborhoods performing quite differently and creating pockets of opportunity for shrewd investors. 

Recent market activity shows signs of life, with notable transactions including Airbnb’s headquarters renewal and Google’s expansion at Hills Plaza. However, challenges remain, particularly with buildings facing substantial vacancy rates and complex loan situations that will require creative solutions. 

Housing innovation and adaptation 

The roundtable explored creative solutions emerging in the housing sector. While office-to-residential conversions have garnered significant media attention, participants noted that hotel-to-residential conversions often prove more practical and economically viable. The discussion highlighted how successful adaptive reuse requires careful consideration of building characteristics, location and market dynamics. 

In the multifamily sector, interesting geographical shifts have emerged post-COVID. Demand has moved outward from urban cores to areas like San Jose, Milpitas, Danville, San Ramon and Walnut Creek. This trend aligns with evolving work patterns, as hybrid schedules make longer commutes more manageable when required only two or three days per week. Meanwhile, the ratio of U.S. apartment renters renewing their leases has climbed to over 54 percent, with some markets seeing retention rates increase by more than 300 basis points. 

Technology and security considerations 

A significant portion of the discussion focused on the increasing role of technology in real estate operations and the associated cybersecurity implications. As buildings become more technologically integrated – from smart access systems to centralized building management platforms – the industry faces new security challenges. 

Cybersecurity experts at the roundtable emphasized the critical importance of employee training and maintaining a high “cyber IQ” across organizations. With ransomware threats growing and smart building systems becoming more interconnected, the real estate sector must prioritize security measures while balancing technological innovation. The experts stressed the importance of having comprehensive incident response playbooks and appropriate cyber insurance coverage. 

Looking ahead: Market opportunities

Despite current challenges, the roundtable revealed several optimistic indicators for the market: 

• Strong investor interest in multifamily acquisitions, particularly in strategic suburban locations 
• Emerging opportunities in repositioning and adaptive reuse of certain properties 
• Potential positive impacts from local government becoming more pro-business regarding zoning and conversions 
• Signs of “stabilization” in certain market segments, with vacancy expected to peak soon 
• Increasing institutional investment activity, as evidenced by recent portfolio acquisitions 

The discussion also highlighted how evolving work patterns and demographic shifts continue to reshape demand patterns across different property types and locations, creating new opportunities for well-positioned assets. 

In summary, BPM’s Real Estate Roundtable provided a nuanced perspective on the evolving market dynamics, highlighting resilience in the U.S. economy, challenges in the San Francisco office sector, innovative housing solutions, and the growing role of technology and cybersecurity.  Despite uncertainties, the discussion underscored emerging opportunities for strategic investment, adaptive reuse, and suburban growth, offering an optimistic outlook for the real estate market’s future. 

How BPM can help

BPM, with its deep knowledge of public accounting and real estate advisory services, stands ready to assist clients in addressing these challenging market conditions. From financial reporting and tax strategies to regulatory compliance and transaction support, our real estate team offers the insights and solutions needed to thrive.  

By partnering with BPM, real estate professionals can confidently tackle the hurdles ahead. Contact us today to learn more.