San Francisco – The Future Depends on Your Vantage Point

When I moved to San Fransisco in July the mood here was positive. The worst of Covid was over and people were returning to their offices in hybrid mode with the expectation that most employees would return full time in January. This was the predominant thinking and the sense that things would begin to feel normal again in San Francisco. Consumer spending was strong, interest rates were raised slightly to curtail inflation, and people were hopeful. By September the sentiment was changing as returning workers did not noticeably materialize. By January the mood had darken dramatically, with an inevitable recession looming, mass layoffs daily and the impact of inflation setting in.

By the end of 2022 San Francisco lead the nation in not returning to work according to the San Francisco Chronicle.

That bears out in The Standard’s poll data: Asked where they’d like to be working a year from now, 31% of poll respondents said they would prefer never to go back to the office. The largest chunk preferred a hybrid schedule of 1-2 days a week (37%) or 3-4 days a week (20%). Only 3% say they would like to go back to the office everyday.

In August, according to Kastle Access Control, San Jose had an office attendance rate of 34.8% compared to pre-pandemic levels. San Francisco was close behind, at 38.4%. By contrast, emerging tech hub Austin’s attendance rate stood at 58.5% in mid-August.

Needless to say workers aren’t coming back anytime soon. And why should they?

Supply way up, rents only slightly down

Despite so few workers actually going in to the office and the amount of available space available on the market in SF having gone up rent prices are only down 13.1% since the first quarter of 2020. That translates from $88.40 per square foot annually to $76.86 second quarter of 2022. It’s astonishing, considering that San Francisco’s office market was 4% vacant and now it has a 24% vacancy rate.

With reluctant workers and unnecessary square footage tech companies are shedding space and closing floors to cut costs. A study in September revealed only employers and older workers seek a return to the office (RTO) 96% of all workers see a benefit of remote work.

“Life as we knew it before the pandemic is not going to go back. This whole work-from-home thing is here to stay.”

London Breed – Bloomberg News, October 2022

The implications in tax collected by the city to fund civic programs is staggering. As leases expire over the next three years budgeting will be impossible for this city. The larger universe outside of San Francisco has its own problems. As of January 10, 2023 projections for the GDP go from 2.0 in 2022 to .02 in 2023 with a rebound of 1.7 in 2024. Despite high interest rates and high inflation US spending is still up, yet the next three quarters we are to expect negative growth. With many contradictions and contributing factors unemployment remains low at 4.5% regardless of the mass layoffs.

So, what’s next for this timeless city?

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