The Outsized Power of 'Smart Money' in Shaping Office Sentiment

• Smart money moves: Irvine Company’s exit from downtown San Diego highlights how major investors still shape office markets.

• Silicon injection: San Francisco’s office market is surging back, leading the nation in sales as investors seize discounted assets.

• Pump you up: A new study finds that heat pumps perform efficiently in older buildings, a shift that could influence retrofit strategies.

• Occupancy data webinar: Learn how to unlock immediate, measurable OpEx savings with occupancy intelligence. Sign up

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The Outsized Power of 'Smart Money' in Shaping Office Sentiment

When Irvine Company sold One America Plaza in San Diego for about 120 million dollars, the deal marked more than the end of a single ownership. It closed the book on Irvine’s remaining downtown holdings, a dramatic shift for a city where the company’s presence once served as a stabilizing force. That exit came after years of weakening fundamentals in the city’s core. Downtown vacancy has climbed into the mid-thirties, and availability approaches half the market when shadow space is counted. Leasing volumes remain well below pre-pandemic benchmarks, and several towers originally sold as “core” assets have been trading at significant discounts.

Irvine Company may have left downtown San Diego, but its overall strategy is not a retreat from real estate. The firm still controls about 129 million square feet across its national portfolio. Its capital is now moving toward suburban and mixed-use districts where demand patterns appear more resilient. In San Diego, that shift is most pronounced in University Town Center near La Jolla, where Irvine holds a significant concentration of office real estate and continues to invest in modernization, amenity upgrades and long range redevelopment planning. This kind of strategic repositioning shows how institutional owners are changing the geography of their bets rather than shrinking their exposure to the sector.

The influence of a major investor’s decision reverberates through a market long before the transaction closes. Irvine Company has a reputation for discipline, patience, and a careful reading of market cycles. When an owner with that history decides an area is no longer aligned with its strategy, competing landlords take notice. In markets that are already searching for equilibrium, such moves shape sentiment. They can even become self-fulfilling, as the perception that a district no longer fits the profile of a blue chip landlord influences pricing, underwriting standards, and tenant expectations.

San Diego’s downtown office sector is now experiencing the influence of a well-regarded institutional landlord pulling out. Ownership is fragmenting, with more assets landing in the hands of opportunistic or shorter-horizon investors. Some of those groups may bring creativity and a willingness to pursue conversions to residential, lab space, or hybrid formats. Others may look to harvest short-term gains, which introduces more volatility during an already fragile period. Investors watching the market understand that the absence of a longtime institutional steward changes both the competitive landscape and the pace at which buildings evolve.

Overheard

Evidence Mounts That Heat Pump Retrofits Work Across Aging Building Stock

A new study tracked seventy-seven heat pump installations across older German buildings, some built more than a century ago, and found that the systems performed far better than many skeptics expected. Seasonal performance factors averaged 3.4 and ranged from 2.6 to 5.4, depending on the building, the equipment, and the heating configuration. When compared with gas-fired systems, the heat pumps produced roughly sixty-four percent fewer emissions in 2024 under the country’s grid conditions. The research indicates that age alone does not prevent older buildings from realizing meaningful gains in efficiency.

The team looked at structures with a wide variety of insulation levels, heating layouts, and renovation histories. Many of the buildings had only modest improvements such as slightly upgraded radiators or minor envelope fixes. The findings suggest that system design, proper sizing, and careful commissioning may matter more than deep energy retrofits in determining whether a heat pump can hit its performance targets. This broadens the pool of viable candidates well beyond recently updated residential buildings.

Many older offices, mixed-use buildings, and small retail properties share the same challenges as aging residential stock. If these systems can deliver stable performance in historic homes, owners of legacy commercial buildings may see a practical path to reduced operating costs, improved emissions profiles, and better regulatory positioning. That could shift the economics of older assets, especially as investors and lenders continue to reward credible decarbonization strategies.

San Francisco’s Office Market Roars Back to the Top

San Francisco has engineered one of the most dramatic office-market reversals in the country, shifting from a national cautionary tale to the top U.S. city for office sales. Through the third quarter, buyers closed $4.7 billion in trades across 147 deals. That's more deals than New York and Los Angeles. Apparently investors see deep value in discounted assets. Avison Young’s James Nelson says the trend has staying power, pointing to a rare entry point in a market where early bets have historically paid off.

The rebound is real but not without caveats. Several high-profile deals tied to OpenAI have raised concerns that parts of the AI surge may be ahead of fundamentals, evoking memories of earlier tech cycles. Stanford research shows early-career tech hiring softening even as overall job growth holds up, underscoring how uneven the recovery is. Still, AI demand has helped stabilize the city’s office market by reducing sublease inventories and lifting occupancy. Institutional investors like New York Life and entrepreneurial buyers alike are returning, and pricing jumping 50 percent year-over-year suggests momentum that could carry values back to prepandemic levels by 2030.

If San Francisco’s turnaround is a guide, the broader U.S. office market may be nearing an inflection point. Deeply discounted coastal assets, once assumed to be untouchable, are attracting capital again as investors look past near-term cash flows and toward long-term repositioning. Markets with strong tech, life-sciences, or civic-driven demand may follow a similar pattern: investors move in early, governments lock in space while prices are low, and sentiment gradually shifts from distress to opportunity. San Francisco’s surge doesn’t fix the national supply-demand imbalance, but it hints that the worst price discovery phase may be over and that buyers willing to take risk today could set the tone for the next office cycle.

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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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