For years, San Francisco was the place to have an office. It seemed like a new tech giant was moving in every other month, and as a result, rental prices shot to the moon.
Today, things aren’t quite the same. In what was once a city that thrived on daily business, footfall has now gone quiet. And where other places like New York and Chicago have bounced back to pre-pandemic levels, San Francisco is struggling to get back on its feet.
So why has this happened? What does it mean for businesses? And could there be some positive change ahead?
First of all, what’s going on with the office market in San Francisco?
It was reported by TechCrunch that in early 2020 (pre-COVID), San Francisco’s office market was 4% vacant. Now, in the last quarter of 2022, it’s 24% vacant. And according to the San Francisco Standard, there’s currently more than 25 million square feet of commercial space available for lease or sublease in the city.
Tech companies that once expanded their square footage at an alarming rate are now subletting some of their office space or moving out completely. Google, Twitter, Netflix, Airbnb and Yelp are just some of the names on that growing list.
As a result of this mass exodus, the city’s level of human activity is not even a third of the way back to where it was pre-COVID—marking the worst recovery of any large city in North America. And naturally, the lack of footfall is having a negative impact on local businesses.
Jenny Dang, the owner of a once-lunch-hour-hotspot called China Wok, said that business is down 60%. The Tempest bar, which would regularly have an hour-long queue out the door, is now “so empty” in comparison to pre-COVID, reported an article in The Times.
People are labelling San Francisco a “ghost town” as large buildings lay empty and the streets are eerily quiet.
Why are there so many empty offices in San Francisco?
It all started during lockdown. Like other cities across the world, offices emptied because of the global pandemic and everyone started working from home.
But if it was all because of COVID, then why hasn’t San Francisco recovered at the same rate as the others?
Well first, the Downtown area (where many of these tech companies based themselves) accounted for most of San Francisco’s GDP, 70% of its sales tax revenue and 40% of its city’s jobs. That’s a lot of eggs in the same neighbourhood.
And then of course, there’s the nature of the roles in San Francisco. Where most of the roles in Silicon Valley are centred around hardware and factories, San Francisco is all about software, marketing and startups. Roles that you can do from anywhere.
During lockdown, these tech companies realised that they didn’t need their teams to work in their San Francisco office every day and so, they downsized.
With crime rates soaring to new heights and houses that cost over $1 million dollars on average, it’s no surprise that this new way of working was welcomed by a lot of SF-native teams. They could keep their dream job, but move to a more affordable city or town with a higher quality of life.
Between the money they could save from downsizing their premises, and teams that are happier to work-from-anywhere, why would businesses keep their humongous HQs in San Francisco?
Can San Francisco’s offices be saved?
Although things seem bleak just now, this could actually be a golden opportunity for the Golden City.
With less demand, landlords might reduce their prices. This would give a new age of startups the chance to move into the area and bring it back to life. Sure, their teams would be much smaller than their previous tenants to begin with—but once upon a time, Airbnb was run by two friends in their living room. There’s an opportunity here to rebuild.
Alternatively, commercial properties could offer more options for short term leases, such as those we source for our clients here at Hubble. It’s difficult for any business to commit to a long term contract right now, especially with rising inflation and news of a recession looming. 12 businesses leasing a building for 6 months each is a lot better than it sitting empty for 6 whole years.
Finally, with the uptick in hybrid working, there’s a huge opportunity for developers to turn these buildings into coworking spaces. These coworking spaces in San Francisco could meet the needs of the large tech companies when team members come to visit, and could also provide a home to smaller startups and freelancers who equally bring so much value to San Francisco’s business community.
Although San Francisco’s office market is taking longer to recover than other places, it’s no way down and out. San Francisco has so much to offer as a city, and just because some big players have decided to scale back on their real estate portfolio, it doesn’t mean that it’s game over. If San Francisco can play to its strengths in this new age of working, it’ll come back stronger than ever.