A significant wave of upzoning across the San Francisco Peninsula is actively transforming the region’s real estate landscape, catalyzing a surge in office-to-residential redevelopment projects. Developers are increasingly targeting aging office properties in some of the nation’s most acutely housing-constrained markets, a trend driven by evolving zoning regulations and persistent demand for multifamily housing. This strategic shift, as reported by BisNow, signifies a proactive response by local municipalities to address California’s stringent Housing Element requirements and the persistent imbalance between apartment supply and demand.
Cities including Sunnyvale, San Mateo, and Menlo Park are at the forefront of this transformation, having implemented more permissive zoning rules that actively encourage new multifamily development. This regulatory recalibration is not merely a response to market forces but a direct effort to meet state-mandated housing goals, particularly crucial in a region characterized by high living costs and limited residential availability. The underlying impetus for these policy changes stems from a recognition that the existing office stock, particularly older buildings, is often ill-suited for modern commercial needs and presents a significant opportunity for much-needed housing creation.
Office Sites Make Way for Housing: A Strategic Shift in Development
Developers are increasingly opting for the demolition of outdated office buildings rather than attempting complex and often cost-prohibitive conversions. This preference is largely due to the inherent challenges associated with repurposing older commercial structures. Deep floor plates, limited natural light penetration, and inefficient internal layouts can significantly complicate the process of creating desirable and functional residential units. Demolition, while a more definitive approach, allows for a clean slate, enabling the construction of purpose-built multifamily complexes designed from the ground up for optimal living conditions.
In Sunnyvale, Beam Reach is spearheading a prominent example of this trend. The company plans to replace two existing office properties with two five-story apartment communities. These developments will collectively offer 472 residential units, a significant portion of which, 61 units, are designated as affordable housing. This inclusion of affordable units underscores a growing trend where new developments are being designed to incorporate a social equity component, a critical aspect in addressing the affordability crisis.
San Mateo is also experiencing a robust pipeline of redevelopment projects focused on transforming office spaces into residential units. Jemcor Development Partners has put forth a significant proposal to replace a five-story office building located at 1700 El Camino Real with two eight-story apartment buildings. This ambitious project aims to deliver 441 apartments, notably including 188 senior housing units, catering to a growing demographic need. Further illustrating the momentum in San Mateo, O’Farrell Development has submitted plans to replace a low-rise office building with an 87-unit apartment project. The sheer volume of proposed housing in San Mateo is remarkable; to date, the city has received applications for over 5,000 proposed housing units, a testament to the effectiveness of its upzoning initiatives and developer interest.
While demolition is a prevalent strategy, it is not the sole avenue for redevelopment. Tourbineau Real Estate Partners, for instance, is pursuing a conversion project in San Mateo. After acquiring a vacant 12-story office building at 2121 El Camino Real in 2025, the firm plans to transform it into 144 apartments. The suitability of this particular building for residential conversion was influenced by several factors, including its narrow floor plates, existing parking infrastructure, and prior seismic upgrades, which reduced the scope of necessary structural improvements. This approach highlights that while demolition is often preferred, well-situated and structurally sound office buildings can still be viable candidates for conversion.
Strong Apartment Market Supports Redevelopment: The Financial Viability Equation
The underlying strength of the Peninsula’s apartment market is a critical driver behind the surge in office-to-residential redevelopment. With housing supply remaining significantly constrained across the region, demand for rental units continues to outpace availability, creating a favorable environment for new multifamily construction and redevelopment.
According to data from Marcus & Millichap, the apartment market in San Jose has shown remarkable resilience, with vacancy rates falling below 3.5%. Concurrently, rents have experienced a notable increase of 4.4% year over year. Similar trends are evident in San Francisco and San Mateo County, where rents have climbed by 5.2%, with vacancy rates also hovering in the mid-3% range. These robust market conditions create a compelling financial case for developers. The combination of strong rental demand, consistent rent growth, and higher-density zoning allowances makes many redevelopment projects, which might have been financially unfeasible in the past, now economically viable and attractive investments.
The upzoning initiatives implemented by cities like Sunnyvale, San Mateo, and Menlo Park are not isolated policy decisions but are part of a broader, coordinated effort to address the state’s housing crisis. California’s Department of Housing and Community Development (HCD) mandates that all local governments zone for their fair share of housing needs, requiring them to plan for a specific number of new housing units over an eight-year period. Failure to meet these requirements can result in significant penalties, including the loss of local control over land use and zoning decisions. Consequently, cities are incentivized to explore innovative solutions, and transforming underutilized commercial properties into residential units has emerged as a key strategy.
Furthermore, state legislation like Senate Bill 79 plays a crucial role in accelerating residential development. This bill, among other legislative efforts, aims to streamline the approval process for housing projects located near transit corridors and along key commercial arteries. By reducing bureaucratic hurdles and encouraging development in well-connected areas, SB 79 complements local upzoning efforts, creating a more conducive environment for the timely delivery of new housing.
A Chronology of Transformation: From Office Dominance to Residential Focus
The current wave of redevelopment is not an overnight phenomenon but the culmination of several converging trends. For decades, the San Francisco Peninsula was a hub for technology and corporate headquarters, leading to the proliferation of large office campuses and commercial centers. However, the advent of remote work, exacerbated by the COVID-19 pandemic, began to alter the traditional office market. Vacancy rates in older office buildings started to climb as companies reevaluated their space needs.
Around 2020-2021, as the long-term implications of remote work became clearer, cities across the Peninsula began to grapple with the future of their commercial districts. Many of these districts, particularly those with a high concentration of aging office stock, faced the prospect of becoming underutilized or obsolete. Simultaneously, the state’s housing mandates became more pressing, as the chronic housing shortage continued to drive up costs and strain resources.
By 2022-2023, a confluence of factors—increased office vacancies, growing housing demand, and state legislative pressure—led to a more aggressive stance on upzoning. Cities began to amend their general plans and zoning ordinances to allow for greater residential density, particularly in areas previously zoned exclusively for commercial use. This regulatory shift, coupled with the strong performance of the multifamily market, signaled to developers that opportunities were emerging.
The period from 2024 onwards has witnessed a significant acceleration of these trends. Developers, recognizing the potential, began acquiring older office buildings, either for conversion or demolition and new construction. The projects currently being proposed and undertaken, such as those by Beam Reach, Jemcor Development Partners, and O’Farrell Development, represent the tangible outcomes of these policy shifts and market dynamics. The pipeline of over 5,000 housing units in San Mateo alone indicates that this transformation is still in its early to mid-stages, with many more projects likely to follow in the coming years.
Broader Impact and Implications: Addressing the Housing Crisis and Revitalizing Communities
The intensified focus on office-to-residential redevelopment carries significant implications for the San Francisco Peninsula and beyond. Primarily, it offers a much-needed avenue for increasing the housing supply in one of the most expensive and supply-constrained regions in the United States. By repurposing underutilized commercial real estate, cities can add density without necessarily encroaching on existing residential neighborhoods or green spaces. This approach to infill development is often more sustainable and efficient.
The inclusion of affordable housing units in these new developments is a critical component of addressing the region’s affordability crisis. While market-rate housing helps to alleviate overall demand pressure, dedicated affordable units are essential for ensuring that residents across a range of income levels can find housing in the area. The commitment to building affordable housing, as seen in Beam Reach’s Sunnyvale project, signals a growing understanding that housing solutions must be inclusive.
Furthermore, these redevelopment projects can contribute to the revitalization of commercial corridors. As office buildings become vacant, they can detract from the vibrancy of a neighborhood. Transforming them into residential communities can bring new life, increase foot traffic for local businesses, and create more mixed-use environments. This can lead to more dynamic and walkable urban centers.
However, this transformation is not without its potential challenges. Developers and city planners must carefully consider the impact on local infrastructure, including transportation, utilities, and public services. Ensuring that new developments are well-integrated into existing communities and that infrastructure keeps pace with growth will be crucial for long-term success.
The shift also raises questions about the future of the office market itself. As more office buildings are repurposed, the supply of commercial space will likely tighten further in certain submarkets. This could lead to increased rents for remaining office tenants or accelerate the demand for modern, Class A office spaces that cater to evolving corporate needs.
The ongoing upzoning and redevelopment efforts on the San Francisco Peninsula represent a pragmatic and forward-thinking approach to tackling complex urban challenges. By leveraging existing real estate assets to meet pressing housing needs, these cities are not only complying with state mandates but are actively shaping a more sustainable and inclusive future for their communities. The success of these initiatives will likely serve as a model for other urban areas facing similar pressures from housing shortages and evolving commercial real estate demands.
