Updated: May 7
San Francisco Supervisors are looking at ways to lure commuters and tourists back downtown, including filling vacant retail spaces and creating lively slow streets
San Francisco's downtown may be slow to recover due to its high proportion of remote-friendly jobs; office workers are also more hesitant to return compared to other cities
Downtown office rents may continue to plunge into 2022, according to Moody's
With continued uncertainty around remote work, San Francisco Supervisors are looking at ways to breathe new life into the City’s deserted downtown.
About half of the City’s 25 largest business taxpayers expect employees to return to the office post-pandemic or haven’t announced a decision, Chief Economist Ted Egan said at a Land Use and Transportation Committee hearing last week. At 7 companies, employees will work from home permanently. Five will split the week between home and office.
It’s too early to determine the long-term effect of this major shift in the downtown workforce for small businesses like salons, bars and restaurants that depend on them. However, real estate data show vacancy and subleasing rates climbing, rent rates starting to decline, and a transformed environment for office demand.
“2020 is beginning to show the vacancy spike and some drop in rent,” that reflects the recessionary cycles over the last 30 years, said Egan, “but the big drop is to come.”
Currently, available subleasing space is at 8.4 million square feet, a higher level than during the dot-com bust. Based on these and other metrics, Moody’s Analytics predicts a 15% drop in rent in 2021 and another 1.8% in 2022.
San Francisco has among the highest percentage of remote-friendly jobs in the country, which “could lead to a slower economic recovery for the city due to downtown traffic,” Egan said. “But it’s unlikely to be permanent. Recovery took several years after the dot-com boom ended.”
Data from Kastle Systems, which operates access systems for office buildings, show that office workers have been hesitant to return despite relaxed restrictions on office work. Capacity in office buildings was about 13% in April, well below the 25% permitted in the orange tier.
One major key to businesses reopening and employees returning to work is vaccination rates. According to DPH health officer Dr. Susan Phillips, the City will be above 80% of residents vaccinated when the state reopens on June 15. That assumes the vaccine remains available and residents continue getting vaccinated. No guidelines exist yet to help companies returning to offices determine employee spacing.
“There’s a lot of subleasing available now and businesses are re-thinking what their space needs may be,” said John Bryant, CEO of the Building Owners and Managers Association of San Francisco. It’s generally assumed with fewer employees in the office, companies will need less space. “Depending on how they space out employees in an office, they may need more space than before.”
Other keys to recovery are a mass transit system that's affordable, reliable and that people are comfortable using, 100% of students back in school, childcare, tenants able to pay their rent, tourism returning with people feeling safe on the streets, and federal money. San Francisco is set to receive $636 million in direct funding that will largely close its two-year deficit.
Supervisor Safai asked presenters what City legislators could do to help.
Regina Dick-Endrizzi, Executive Director of the Office of Small Business said the City needs to keep track of the small business service sector’s ability to hire: “The food-based businesses were already having difficulty pre-pandemic. We don’t know how many of those service workers are still in the city or will return,” she said.
She also suggested monitoring these businesses’ ability to get PPP and other financial relief funding, as well as the timing of that funding relative to when they must pay back rent. “The federal restaurant relief program just opened applications today, but it’s still going to be awhile before they see that funding.” Applications for Save Our Stages federal funding opened last week.
Filling vacant and boarded up ground floor retail space was another concern. With rents coming down, “space might become affordable to tenants priced out in the past,” Egan said. Discussion participants speculated this might include nonprofits previously displaced to the East Bay. New businesses might move in, particularly at the lower sublease prices. Either way, the mix of types of businesses and people downtown could shift.
Making downtown an attractive and lively place to be could also lure people back, added Rodney Fong, CEO of the SF Chamber of Commerce.
“We need to create a downtown as a neighborhood,” said Fong. Acting Economic and Workforce Development Director Anne Taupier, agreed.
“Central SoMa was designed to be a more mixed-use district that doesn’t close at 6 p.m.,” she said. “It’s going to be critical going forward that we have a central business district that has a lot of integrated uses so restaurants and small businesses aren’t just reliant on office workers.”