By Novo Real Estate
Few property types in the city blend income streams the way a storefront below apartments does. Rezoning, office conversion incentives, and a shifting retail map are all changing how investors view these properties. Some corridors are gaining height allowances while others are adjusting to slower downtown foot traffic.
We put together a local look at what is moving the market and what to weigh before you commit capital.
Key Takeaways
- Height changes: San Francisco’s Family Zoning Plan opens the door to taller, denser projects along select corridors.
- Conversion incentive: Voters approved a transfer tax waiver in 2024 to encourage office-to-residential projects.
- Retail split: Neighborhood and grocery-anchored retail has outperformed downtown corridors, according to Matthews.
- Rent rules: Local rent control and state law shape the income any residential portion can produce.
The Family Zoning Plan Is Reshaping Corridors
The Board of Supervisors approved Mayor Daniel Lurie’s Family Zoning Plan on December 2, 2025, by a 7-4 vote. KQED reported that it creates capacity for about 36,000 new homes across the city.
How the Plan Touches Investors
- Taller allowances: Reported increases range from two to four added stories near transit and commercial corridors.
- Major thoroughfares: Van Ness Avenue, Market Street and Geary Boulevard are named for the tallest options.
- Phased impact: Rules take shape through city review, so timelines for any single parcel can vary.
Owners of older low-rise properties on these streets may see new redevelopment options. A conversation with the Planning Department remains the best way to confirm what applies to a specific lot, since citywide headlines do not always match parcel-level rules.
Prop C Gives Downtown Office Space a Second Life
San Francisco voters passed Prop C in March 2024 to waive the city transfer tax once after an office-to-residential conversion is completed. SPUR notes that the waiver covers up to 5 million square feet of converted space citywide.
Conditions Worth Knowing
- Approval window: Project sponsors need planning approval by the end of 2029.
- Construction clock: Work must begin within three years of that approval.
- Cost gap: SPUR cautions that the waiver alone may not close the cost gap for most conversions.
Downtown buildings with retail at street level can fit this path, but the math differs for each one. Experienced advisors can help you weigh conversion costs against future income, and a lender can confirm what financing is realistic.
Neighborhood Retail Is Holding Up Better Than Downtown
Matthews reported a 5.3 percent retail vacancy rate for San Francisco in the second quarter of 2026. Average asking rent was $44.22 per square foot, up 0.7 percent from a year earlier.
What the Retail Data Suggests
- Stronger performers: Neighborhood centers, grocery-anchored properties and service-oriented tenants are favored by investors.
- Pressured areas: Downtown retail corridors face higher vacancy because office recovery has been slower.
- Cap rate signal: Matthews cited an average cap rate of 5.4 percent for retail sales in the quarter.
Ground-floor tenants such as grocers, fitness studios and service businesses can steady income for the whole building. Block-by-block location, tenant mix and lease length often matter more than the building’s age.
Rent Control and Costa-Hawkins Shape the Math
San Francisco’s rent control effectively reaches back to buildings first occupied before 1979, because state law limits local controls on newer construction. California voters rejected Prop 33 in November 2024, which would have repealed the Costa-Hawkins Rental Housing Act.
Income Factors to Model
- Construction date: Date of construction can change which apartments fall under rent control.
- Eviction rules: San Francisco extended its eviction controls to residential properties regardless of construction date.
- Commercial leases: Storefront rents are negotiated privately and sit outside residential rent rules.
The residential and commercial halves of a building follow different rulebooks. A separate underwrite of each piece gives a clearer picture of true cash flow, and it helps you compare one property against another.
Demolition Protections and Small Business Concerns
An amendment from Supervisor Myrna Melgar exempts buildings with three or more rent-controlled units from demolition under the plan. An approval from the city Planning Commission can still allow demolition in some cases.
Risks and Safeguards to Review
- Protected housing: Roughly 80,000 rent-controlled units gained added protection through the amendment, KQED reported.
- Tenant disruption: Redevelopment plans can trigger relocation questions for both residents and storefront operators.
- Mitigation fund: City leaders discussed a construction mitigation fund to support small businesses affected by projects.
Any redevelopment thesis should account for existing tenants and local approvals. Early diligence on those items prevents costly surprises later, especially when a storefront lease runs for several more years.
FAQs
What makes these properties attractive to investors?
They combine residential rent with storefront income under one roof. That mix can soften the impact when one segment slows. Diversified income is a main reason investors keep returning to the property type.
Are mixed-use buildings San Francisco CA a fit for first-time investors?
They can be, though the layered rules call for careful research. Many first-time investors start with smaller properties and bring in local advisors early.
How do I evaluate a property before making an offer?
Review rent rolls, lease terms, zoning, and any rent control status for each unit. Ask for a recent inspection and confirm storefront tenant history. A local advisor can help you interpret what the documents show.
Reach Out to Us at Novo Real Estate
If you are weighing a property in the city, reach out to us at Novo Real Estate to schedule a conversation about your goals. We will walk through the local factors that matter most for your next move.
