While many people have their opinions about San Francisco’s commercial real estate market, including how well it’s doing or how poorly, it seems like everyone has different views of what’s really happening in the marketplace right now. As such, a lot of owners, trustees, and fiduciaries are struggling to figure out which signals in the marketplace they should be paying attention to.

Rather than simply reacting to whatever sounds loudest in the marketplace, it is essential for decision-makers to concentrate on measuring those metrics that have consistently driven underlying market results. When these metrics are measured in conjunction with other metrics from the same sector, decision-makers can operate intentionally instead of reactively.

Why San Francisco Commercial Real estate Metrics Matter More Than Market Narratives

The narrative around the market is emotional, but metrics are logical. The reason headlines respond to sentiment is because numbers evolve slowly over a long period of time and tend to be more accurate than buzz words. That’s why metrics are crucial for long-term investors and fiduciaries, as they provide a way to separate between short-term displacing events and lasting change. 

Jay Paul, Founder of Jay Paul Company in San Francisco once said:

“We are long-term holders who consciously operate with the future in mind, focusing on quality, sustainability, and fostering lasting relationships.”

This philosophy is supported by numerous institutions and, in particular, CBRE’s San Francisco office fundamentals report, which demonstrates the importance of analyzing the numbers themselves rather than allowing media headlines to dictate our opinions on any situation.

1. Vacancy Rates And What’s Hidden Inside the Number

The concept of vacancy is presented as a singular statistic, but in almost all instances, that number does not convey the entire story surrounding the vacancy. Therefore, it is important for owners to go deeper into understanding the above questions related to the vacancy in their portfolio. For example, what is the vacancy of the directly competitive submarket or top 10 directly competitive buildings to the subject property. Jackson Square is a very different submarket that is SOMA, for example. 

2. Effective Rents vs. Asking Rents

The perception of asking rents may influence decision-making; however, effective rents will represent the economic reality that most tenants face when deciding on their lease options. In today’s leasing market, an owner will not be able to utilize the headline rent alone to make an informed decision about the cash flow performance of a property because of the growing importance of concessions (e.g. free rent and tenant improvement allowances) in evaluating the viability of a potential lease. Therefore, it is essential for owners to track both headline and effective rents when assessing the current cash flow performance of an office asset.

3. Lease Term Length and Renewal Patterns

The length of tenant lease renewals indicates a great deal about a tenant’s confidence in the property as compared to other indicators.

Renewals that are shorter in duration tend to indicate that the tenant is cautious; conversely, leases with longer terms tend to indicate that the tenant is committed to the location, the owner’s property management and/or invested in improving the operation of his or her business, regardless of whether the terms of the lease were adjusted or changed.

Those overseeing Commercial Property Management can utilize renewal patterns as a leading indicator of how tenants feel about their businesses.

4. Tenant Credit Quality and Industry Mix

Risk is not just associated with vacant space; it is closely related to how concentrated an asset is on a single industry. While assets that are concentrated in a single industry may appear stable at one point in time, they may become vulnerable to changes in an industry or economic sector.

Lenders are concerned with tenants and industries that are concentrated in commercial real estate (CRE) and the risks that arise from this concentration.

5. Operating Expense Ratios

Operating expense ratios should be monitored to measure how well the owner is running the property based on the property’s net income. The best operating expense ratios are also an indication of whether or not the property’s net operating income will continue to sustain itself or gradually retreat.

6. Capital Expenditure Timing

Capital expenditures demonstrate foresight. Delaying maintenance might help maintain the cash flow of a property for a short period; however, the longer that maintenance is deferred, the less flexibility the property will have in the long run.

Wise owners will match capital expenditures to their leasing cycles, debt events, and their future positioning, which is a core component of Asset Advisory & Positioning.

7. Debt Maturity and Interest Rate Exposure

Misaligned debt creates risk rather than debt itself creating risk. By gaining an understanding of the maturity schedule, the exposure to interest rates, and the flexibility of covenants, owners will be able to make a more thoughtful approach to refinancing versus reactive. When the timeline of the debt does not match with the leasing cycle or capital plan of the real estate, the cash flow from the asset can be pressured unnecessarily even when it is performing well.

In making these decisions, the decision-makers should consider the following:

• Near-term maturities that coincide with leasing uncertainties or high vacancies.
• The exposure to variable rates creates volatility in cash flow. 
• Covenants that have rigidity during transition periods restricting the owners of an asset from being able to operate.

For trustees and fiduciaries, the oversight of their debt is not just a financial function; it is a governance role. Careful reporting and modelling of various scenarios and aligning with the owner’s long-term intentions for the asset will help ensure that decisions regarding their debt are made as a result of strength, not urgency.

This is why the assistance of structured advisory support is essential, to assist them through the complexities of transition through debt and to asset transition.

8. Submarket Absorption Trends

When discussing San Francisco, keep in mind that San Francisco itself is not represented as a singular market; it is broken down into multiple marketplaces, each designated as a micro market. Each micro-market behaves differently, and due to the difference between Downtown, SOMA,Westside and the Peninsula Corridor of each of these micro-markets, the impact of changing employment patterns, infrastructure investment, as well as tenant attraction to employment patterns are not captured through the standardised citywide average statistics.

Some of the benefits/advantages of tracking Sub-Market Absorption Trends (SMAT/ABT) by sub-market is as follows for Landlord or Owner-Users of real estate:

• To understand where demand is beginning to stabilize and/or where it is beginning to contract;
• To view or research and evaluate which sub-markets or locations are beginning to attract new tenants and/or adaptive reuse interest; and
• To measure the speed in which “vacant” or available space is being absorbed/consumed compared to surrounding/competing sub-markets.

This type of hyper-local/localised information will provide an enormous amount of value when making Hold, Reposition/Adapt, or Dispose of real estate decisions. By developing data points from the sub-market level versus using generic trending or market sentiment(s), landlords and/or owners/users of real estate can make better informed decisions concerning timing and capital. For the long-term stewards of San Francisco assets, identifying and understanding these subtle market and economic dynamics between sub-markets may be all that separates “reactive” decisions versus a “measured” approach.

9. Comparable Sale Velocity (Not Just Pricing)

While discussions in the market often centre around pricing, or the price at which comparable assets transact, the velocity of comparable asset transactions (how quickly assets are sold) often provides a better indicator of liquidity in the market. When comparing similar properties to see how efficiently they close (with minimal retrading and long marketing periods) indicates a strong level of conviction from active buyers and an operational capital market.

Transaction velocity can be used to support ownership in determining:

• how quickly buyers are underwriting, or if they are hesitating
• how quickly capital is moving within a specific asset type or submarket
• the difference between perceived value and executable pricing

As owners are beginning to think about selling, transaction velocity will be a key metric for early pre-disposition planning. The monitoring of transaction velocity will provide owners with insights to help make the decision regarding when to place their property on the market and the best way to prepare their properties for the future without being forced to do so during a time when liquidity will be restricted.

Michael Covarrubias, Co-CEO of TMG Partners (San Francisco–based developer and long-term owner), is frequently quoted in industry discussions emphasizing preparedness and decisiveness across cycles:

“The advantage in real estate belongs to those who are prepared to move when clarity appears, not those waiting for perfect conditions.”

Understanding this critical insight may provide ownership insight as to how, or why, financial and operational readiness will frequently be more important than headline

10. Time-to-Decision: How Quickly Owners Can Act

Internal readiness is frequently overlooked as a key performance indicator (KPI). Decisive action often takes precedence over prevailing market conditions, especially during times of market uncertainty. A property owner who has a clear governance structure in place, accurate financial reporting, and a well-aligned advisory team will be in a better position to capitalize on new opportunities, or mitigate risk, quickly and efficiently.

The time-to-decision metric indicates not only how fast one can make a decision, but also how mature one’s operational processes are. When an owner has an accurate reporting system in place and a clearly defined authority to make decisions, he/she can take all available options into consideration, rather than just responding to immediate pressure.

The time-to-decision metric is of particular importance for:

• Multi-generational (or trust-held) properties
• Properties nearing debt maturity/lease expiration
• Properties transitioning or repositioning.

Preparedness during uncertain times creates opportunities. The ability to take a deliberate action instead of reacting to situations often creates a separation between resilient owners and reactive managers.

Turning Metrics Into Measured Decisions, Not Noise

Merely having metrics does not create an understanding of what they represent; however, having the right interpretation of those metrics creates a level of understanding. Companies like Westvale consider these metrics to be a cohesive system for understanding stewardship, managing risk, and protecting the value of your wealth over time. 

As Marty Smith, Founder of Westvale CRE, explains:

“Good ownership isn’t about reacting faster, it’s about seeing clearly enough to move with intention. Metrics give us that clarity when emotions run high.”

For families, fiduciaries, and long-term owners, the goal is not to outguess the market, but to manage assets with discipline, perspective, and care.