Commercial Real Estate in Palo Alto: Downtown Caps, Research Park Zoning and the City Transfer Tax

By Matthew Martinez, Founder, CEO & Managing Broker, Diamond Real Estate Group. California DRE #01869679.

Palo Alto’s commercial property sits in a few well-defined places: downtown around University Avenue, the California Avenue and El Camino Real corridors, shopping centers such as Midtown and Charleston, the research and office districts west and east of El Camino, and light industrial land along the Bayshore Freeway. The city’s zoning is unusually restrictive about how much new commercial floor area can be built and about keeping offices off the ground floor, and Palo Alto charges its own transfer tax on top of the County’s. Confirm the district, combining overlays and tax treatment for any parcel with the Palo Alto Planning and Development Services Department.

Who controls the parcel

Palo Alto is a charter city, and Title 18 of its Municipal Code is the zoning ordinance, with separate titles for precise plans and the city’s master plan. Much of the research district is land Stanford University owns and leases out, and Title 18 has a chapter of alternative standards for Stanford lands. The Stanford campus itself is unincorporated and under County zoning; see our Stanford commercial page and Santa Clara County commercial guide. For a leased-land research building, the ground lease terms matter as much as the zoning.

Palo Alto zoning for commercial, industrial and mixed use

District	Intended uses	Notes
CN Neighborhood Commercial	Moderate neighborhood retail, services, restaurants and offices	25 ft and two stories; 0.4 FAR; office capped at 25% of lot area, up to 5,000 sq ft
CC Community Commercial	Major community and regional centers	50 ft, 35 ft near homes
CC(2)	Site-specific community commercial	37 ft; 2.0 FAR; housing allowed
CS Service Commercial	Auto-oriented services, vehicle servicing and loading	0.4 FAR, 2.0 for hotels; office capped at 5,000 sq ft per lot
CD-C, CD-S, CD-N Downtown	Downtown retail, services, offices and housing	Nonresidential FAR 1.0 in CD-C, 0.4 in CD-S and CD-N
MOR Medical Office and Research	Medical office and research near hospitals	0.5 FAR; 50 ft
ROLM, ROLM(E)	Research, office and limited manufacturing east of El Camino	0.4 FAR (0.3 in ROLM(E) near the Baylands); office should not predominate
RP, RP(5)	Research and manufacturing west of El Camino on large parcels	0.4 FAR (0.3 in hilly RP(5)); 35 ft, up to 40 ft in some cases
GM General Manufacturing	Light manufacturing, research and commercial services	0.5 FAR; offices very limited

Downtown and the shopping districts

Size caps. The CD district’s stated purposes start with controlling the rate and size of commercial growth and preserving ground-floor retail. New nonresidential construction or expansion is capped at 25,000 square feet, or 15,000 square feet above existing space if that is greater, even where the FAR would allow more. FAR can rise through transfers of development rights from sender to receiver sites, seismic and historic rehabilitation bonuses, and extra floor area for small housing projects, up to 3.0 in CD-C and 2.0 elsewhere.

Height. Downtown heights are 50 feet in CD-C and CD-S and 25 feet for nonresidential buildings in CD-N, with lower limits within 150 feet of homes.

Use rules. Shopping centers are permitted only in CD-C, and liquor stores need a conditional use permit in CD-N. On University Avenue, fitness studios and small-group learning centers need a conditional use permit. Pedestrian Shopping (P) and Ground Floor (GF) combining districts add further rules on designated blocks.

Ground-floor offices. Across the CN, CC and CS districts, medical, professional and business offices generally cannot take ground-floor space. The exceptions mostly turn on what was there on March 19, 2001: offices continuously present since then, or space that was vacant or not a retail or service use at that date. Ask for a use history before marketing a vacant storefront to an office tenant. Midtown generally requires a conditional use permit for new ground-floor offices, and Charleston Shopping Center caps office space at 7,850 square feet and bars ground-floor housing.

Research districts, hazardous materials and housing

Palo Alto’s research zones have low floor area ratios, 0.3 to 0.5, and 30% site coverage in most of them, so expansion potential is limited. Designated sites under the Stanford development agreement have a 0.5 FAR. Housing is now possible in these districts. Multifamily is permitted in RP and needs a conditional use permit in MOR, and in ROLM and GM it is permitted on Housing Element opportunity sites. Hazardous materials limits apply throughout: no new residences within 300 feet of a Tier 2 hazardous materials user, a conditional use permit within 600 feet in RP, and no new sensitive receptors within 300 feet of Tier 2 or Tier 3 users. A research tenant’s chemical inventory can therefore affect what neighbors can build. GM property on East Bayshore Road needs a 20-foot setback from that frontage.

Transfer tax, business tax and property tax

City transfer tax. Chapter 2.34, first adopted by Ordinance 2398 in 1967 and amended in 1992, charges $1.65 per $500 of consideration, or $3.30 per $1,000, at a flat rate. The city’s Director of Finance collects it, and it has its own exemptions for debt security, government transfers, foreclosure and divorce transfers.
County documentary transfer tax. The County’s real property transfer tax chapter charges $0.55 per $500 and credits only a city tax set at half that rate. Palo Alto’s rate is higher, so the County tax appears to apply in full alongside it; confirm the total with escrow.
Other taxes. We did not verify a Palo Alto business license tax or the transient occupancy tax rate for this page. A change of ownership generally triggers Proposition 13 reassessment.

Due diligence that matters in Palo Alto

Start with our commercial due diligence checklist, then add:

Pull the March 2001 use history for any ground-floor space you plan to lease to an office user.
Check combining overlays such as P, GF and retail shopping (R) districts on the zoning map.
Downtown, confirm FAR, the 25,000-square-foot growth cap and any transferable development rights.
For research buildings, review the Stanford ground lease and development agreement status.
Ask neighboring research users about Tier 2 or Tier 3 hazardous materials if you plan housing or child care.
Budget the city transfer tax at $3.30 per $1,000 plus the County tax.

Questions people ask

Does Palo Alto have a city transfer tax?

Yes. Chapter 2.34 charges $1.65 per $500, collected by the city, in addition to the County’s $0.55 per $500.

Can an office tenant lease a ground-floor storefront in Palo Alto?

Generally not in CN, CC or CS, unless an exception applies, most of which depend on how the space was used on March 19, 2001.

How much can I build downtown?

Nonresidential FAR is 1.0 in CD-C and 0.4 in CD-S and CD-N, and new nonresidential space is capped at 25,000 square feet per project, with bonuses and transfers available.

Can housing be built in the Palo Alto research districts?

Yes. Multifamily is permitted in RP and on Housing Element opportunity sites in ROLM and GM, with conditional use permits elsewhere and hazardous materials buffers.

What is the difference between RP and ROLM?

RP covers large research parcels west of El Camino Real, while ROLM covers research, office and limited manufacturing east of El Camino. Both have a 0.4 FAR.

Are offices capped in neighborhood centers?

Yes. In CN, office space is limited to 25% of lot area, between 2,500 and 5,000 square feet, and in CS to 5,000 square feet per lot, unless a conditional use permit allows more.

Does Diamond handle commercial property in Palo Alto?

Contact Matthew Martinez to discuss buying, selling or leasing commercial property in Palo Alto.

Sources & notes

Note: We read only part of the long CD and CN/CC/CS chapters, did not review the North Ventura district, combining district chapters, precise plans or the parking chapters, and did not verify business license or TOT rates. Whether the County tax applies in full alongside the city tax was inferred from the County credit rule.

This page is general information, not legal or tax advice. Last reviewed October 2026 by Matthew Martinez.

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