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How Is Remote Work Reshaping Property Demand? Check Out PayPal's Closing of a San Francisco Office.

Payments Platform Becomes Latest Tenant To Vacate Downtown Tower as Companies Tweak Real Estate Needs

By Katie Burke

CoStar News

April 27, 2022 | 5:53 P.M

Downtown San Francisco is losing another high-profile tenant as the long-term fallout of remote work and flexible schedules adopted in the pandemic reshape office demand across the country.

PayPal is preparing to permanently close its roughly 53,000-square-foot office at 425 Market St. in response to its newly adopted hybrid-work policy, which allows employees to establish their own telecommuting and in-office schedules. The company will keep its headquarters in San Jose, California, where it owns a nearly 282,000-square-foot campus at 2211 N. First St., according to CoStar data.

The company said the experience of the past two years pushed it to reevaluate all its workplace locations as it adjusts to a future that prioritizes flexibility for workers.

“The pandemic, in particular, has taught us there are many ways in which we can work effectively while providing our employees with flexibility,” a Paypal spokesperson told CoStar News. “PayPal remains fully committed to the Bay Area and to California and we will continue to hire into and invest in our business and people working within the state.”

Tech companies have throughout the pandemic been at the forefront of corporate decision-making regarding closing offices to mitigate the spread of COVID, adopting flexible-work models, subleasing space they no longer need and, more recently, deciding whether and how to safely get employees back into physical workspaces. A lengthening list of prominent tech firms, including Salesforce and Airbnb, have ditched their lease commitments signed before the pandemic in favor of implementing hybrid schedules that allow the bulk of their employees to operate remotely.

While the moves sent a worrisome signal to the national commercial real estate market, the practical implications hit the San Francisco office market especially hard. PayPal's move to consolidate its Bay Area operations around its San Jose headquarters could be a sign that the rising vacancy rates and depressed leasing demand in the region are unlikely to fade soon.

The Market Street space PayPal takes in downtown San Francisco office is slated to close in June. It had previously been the corporate headquarters for Xoom, an online money transfer platform PayPal acquired for nearly $900 million in 2015. Xoom had been leasing space across two floors of the 996,760-square-foot tower since 2014, according to CoStar data.

Symbol of Corporate Changes

The Market Street office building has become a symbol of the changes companies have made in response to the long-term effects of the pandemic on their workplace needs. Some companies that prioritize collaboration and in-office work are leasing larger blocks of space, while others are offloading ancillary, underused locations as a larger portion of their workforce continues to operate remotely.

Beauty retailer Sephora is set to vacate its headquarters in the tower and relocate to larger space it subleased from Salesforce at 350 Mission St. The sublease agreement will allow Sephora to consolidate multiple office locations it had in San Francisco and give employees more space across the 16 floors it is set to move into next year.

The tower at 425 Market St. is owned by insurance giant MetLife and Norges, Norway’s sovereign wealth fund manager. The landlord venture did not respond to CoStar News' requests for comment.

San Francisco's office market has struggled to regain the momentum it had prior to the pandemic's outbreak in early 2020. The pool of tech giants and midsize startups that had been jumping to prelease some of the most expensive office space in the country has shrunk considerably.

Some of the city's largest, most reliable tenants such as Salesforce, Merrill Lynch, Dropbox, Yelp and others have offloaded, sold or declined to renew leases for large blocks of space.

As a result, CoStar data shows that rents in the area have fallen to about $62.50 per square foot, down by more than 1% over the past year after falling at the fastest pace of any market across the country since the onset of the pandemic.

Burk, Katie. “How Is Remote Work Reshaping Property Demand? Check Out PayPal's Closing of This San Francisco Office.” Costar, Costar, 28 April. 2022,


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