Commercial Real Estate in San Francisco: C-3, PDR and Mixed-Use Zoning, Office Allocation and Transfer Tax

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

San Francisco’s commercial property runs from the downtown office towers and Union Square retail of the C-3 districts to the production and repair buildings of the PDR districts, the Eastern Neighborhoods mixed-use blocks of SoMa, the Mission and Dogpatch, and dozens of neighborhood commercial streets. Few cities layer as many rules on one building: an office cap, chain-store controls, a transfer tax reaching 6%, and business taxes rewritten in 2024. Confirm the zoning, height and bulk district and any special use district for every parcel with SF Planning before relying on this page.

Who controls the parcel

San Francisco is a consolidated city and county, so there is no separate county zoning layer: the Planning Code governs every privately owned parcel, applied by the Planning Department and Planning Commission. Mission Bay (Article 9), Port land and redevelopment-successor areas can follow their own plans.

San Francisco zoning for commercial, industrial and mixed use

The C, M and PDR districts exist, in the code’s words, to reserve well-located land for business and industry, per Section 210.

Downtown, PDR land and the Eastern Neighborhoods

Downtown C-3. Most non-retail service uses, including design professional and laboratory uses, are principally permitted in C-3, though the code schedules a ground-floor conditional use requirement for some of them after December 31, 2030. Residential density is form-based, no off-street parking is required, ground floors need at least 14 feet floor to floor, and certain streets must carry active commercial frontage. Converting or demolishing existing housing needs a conditional use.

Office-to-housing conversions. Section 210.5, added in 2023 and amended through April 2025, lets non-residential buildings in C-3, and in C-2 east of Franklin/13th Street and north of Townsend, convert to housing without meeting lot coverage, open space, bicycle parking, loading or unit-mix rules, with a looser exposure test. It covers conversion, not demolition, and additions over a third of existing floor area lose the relief. Hotels are excluded.

PDR districts. Under Section 210.3A, PDR-1-B and PDR-2 cap certain non-accessory retail and office uses at 2,500 or 5,000 square feet, with combined limits, to protect industrial space. In PDR-1-D and PDR-1-G, office in a landmark building needs conditional use and Historic Preservation Commission review, and large low-intensity parcels north of 20th Street must keep at least a third of new floor area in PDR use with no housing.

Urban Mixed Use. The UMU district buffers housing from PDR land. Office is generally prohibited within the Mission Area Plan and limited to upper floors elsewhere; light manufacturing and trade shops are permitted, but life science is not. Retail up to 3,999 square feet per use is permitted, 4,000 or more needs conditional use, and housing carries higher affordability requirements than in other districts.

Office allocation and formula retail controls

The office cap. San Francisco meters new office space through its Office Development Annual Limit program, dating to the 1985 Downtown Plan and amended by Proposition M in 1986, Proposition E in 2020 and Proposition C in 2024.

• Threshold. Projects adding more than 25,000 gross square feet of office need a Planning Commission allocation.
• Small and large pools. Projects of 25,000 to 49,999 square feet draw from a 75,000-square-foot annual small pool. Larger projects draw from the remainder, and unused space carries forward. The approval year starts October 17.
• Housing link. Since Prop E, the large-project pool can shrink in years the city falls short on affordable housing production.
• Conversion credit. Prop C created a credit program for existing office of 10,000 square feet or more that is converted or demolished. The Zoning Administrator published the final inventory on August 30, 2024.

Check the program’s current status report for the available balance.

Formula retail. Under Section 303.1, a business is formula retail if it has eleven or more other locations worldwide, open or approved, plus at least two standardized features such as a trademark, signage, decor or uniforms.

• Banned outright in RH and RM districts, Hayes-Gough NCT, North Beach and the Chinatown Visitor Retail District.
• Chain restaurants banned on several neighborhood streets, including Upper Fillmore, Broadway, Irving, Judah, Noriega and Taraval, with chain bars and restaurants barred in Central SoMa.
• Conditional use in every Article 7 neighborhood commercial district, the RC districts and most Eastern Neighborhoods mixed-use districts.

The section was most recently amended by Ordinance 37-26, effective April 11, 2026. The C-3 districts are not on the conditional use list we reviewed; confirm for any specific site.

Transfer tax, business tax and property tax

Transfer tax. The city’s transfer tax, under Article 12-C of the Business and Tax Regulations Code, is charged per $500 of price, or fair market value for entity transfers, at a rate set by the size of the deal:

The top two tiers were doubled from 2.75% and 3.0% by a 2020 ballot measure, Proposition I. SF Planning notes that 2024’s Proposition C exempts non-residential to residential conversions from the tax. A proposed initiative to split the top-tier tax and dedicate part to affordable housing has a city title and summary, but it is a proposal, not law.

Gross receipts and executive taxes. Voters approved Proposition M on November 5, 2024, effective January 1, 2025:

• Exemption. The small business exemption from gross receipts and Overpaid Executive Tax rose from $2.25 million to $5 million in city gross receipts.
• Real estate category. Business activity categories dropped from 14 to 7; real estate (NAICS 531) sits in Category 3 at 0.413% in the lowest 2025 bracket, apportioned by receipts from San Francisco property.
• Overpaid Executive Tax. Rates run from 0.020% to 0.120% by pay ratio, with exemptions for firms with 1,000 or fewer U.S. employees and $1 billion or less in receipts.
• Commercial Rents Tax. Landlords leasing commercial space have a $2,325,000 exemption, with rates unchanged.

A change of ownership generally triggers Proposition 13 reassessment.

Due diligence that matters in San Francisco

Start with our commercial due diligence checklist, then add:

• Confirm the use, height and bulk and special use districts.
• For new office over 25,000 square feet, check the allocation pool balance and whether conversion credits apply.
• For a chain tenant, confirm whether the district bans formula retail or requires conditional use, and pull any existing CU.
• In PDR, confirm the office and retail size caps before assuming a change of tenant mix.
• Price the transfer tax at the correct tier; crossing $10 million more than doubles the rate.
• Model gross receipts and Commercial Rents Tax exposure.

Questions people ask

Sources & notes

1. SF Planning Code (GoCodebook)
2. Planning Code Section 210, C, M and PDR districts
3. Planning Code Section 210.2, C-3 districts
4. Planning Code Section 210.5, adaptive reuse program
5. Planning Code Article 8 and Section 838, UMU
6. Planning Code Section 303.1, formula retail
7. SF Planning, Office Development Annual Limit program
8. City and County of San Francisco, transfer tax
9. Department of Elections, 2020 transfer tax digest (draft)
10. City Attorney title and summary, proposed transfer tax initiative
11. Treasurer & Tax Collector, Prop M 2024 business tax reform

Note: Planning Code text was read on GoCodebook, a code publisher; confirm against the official code. We did not review the Commercial Vacancy Tax, Article 7 district tables, Mission Bay or Port rules, or the current office allocation balance. The proposed transfer tax initiative’s election date and status were not confirmed.

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

Related: San Francisco real estate guide · Multifamily property in San Francisco · Commercial real estate services