Card-swipe data shows that San Francisco workers have been slower to return to offices compared other cities, at about 13% capacity in April
Total vacancy climbed last quarter to 16.7%, but tour activity is also increasing, indicating a possible pickup in demand for offices
The latter half of 2020 will likely bring more clarity around what the pandemic means for San Francisco's downtown economy long term
The worst may be over for San Francisco's office market, but there's little sign yet that workers are flocking back despite relaxed restrictions.
According to Kastle Systems, which operates access systems for office buildings nationwide, San Francisco has the lowest office capacity of any major metro it tracks. Card swipe data shared with Public Comment suggest that capacity in office buildings hasn't moved much this year, and was hovering at around 13% in the first week of April. San Francisco currently allows at least 25% capacity at offices, depending on size, so long that social distancing is observed.
Although not comprehensive, Kastle's footprint in the San Francisco metro area spans 120 buildings, 1,800 businesses and 20,000 cardholders—a healthy sample of local office workers. As of April 7, the second-lowest office capacities were in San Jose and New York City, at 16.7% and 13.5%, respectively. The city with the fullest offices was Dallas, at about 40% capacity.
"San Francisco is not going to die, but it's also going through a period not unlike the dot-com period," said Paul Getty, CEO of Bay Area-based real estate firm First Guardian Group.
San Francisco's population declined between 2001 and 2005 as dot-com jobs vanished. But it soon came roaring back, exceeding earlier population counts in the second half of that decade. With rents at their lowest point in years, the City could see a similar renewal after COVID.
Demand for offices are another story: Well into the second quarter, and with vaccinations picking up, the San Francisco office environment is one of "tepid optimism," according to JLL. Total vacancy climbed to 16.7% last quarter, but several smaller firms pulled subleases off the market with the intent to reoccupy.
Meanwhile, tour activity is picking up: VTS, which tracks office tours, said that San Francisco had recovered 95% of pre-COVID tour activity by March 2021, indicating a pickup in demand for office space. Meanwhile, local companies that could be in a position to expand, such Reddit, Databricks and Stripe, raked in billions in funding last year.
Several large employers have shed office space in anticipation of permanent, flexible work models, and a recent survey by the Bay Area Council found that 34% of office workers plan to commute less after the pandemic.
How much of that is permanent over the long term remains to be seen. Much of it could boil down to the needs of individual businesses: Kastle's data, for example, indicates that the legal industry is returning to office work at a higher rate—37% nationally—than other industries. Likewise, companies in design or manufacturing could have an elevated need for in-person collaboration.
Social behavior may be another under appreciated factor: Although the flexibility to work from home when needed is desirable for many office workers, "there are a lot of drivers for offices," though recovery could take awhile, added Getty.
"You can't build a network on Zoom," Getty said. That may be particularly important for younger workers who want to partake in the socializing, relationship-building and serendipity that living and working in an urban environment affords.
As more locals get vaccinated in the coming months, and more employers begin to formally open offices again, clarity—if not recovery—is on the horizon. In the meantime, employers who expect a return to the office may take advantage of low rents to ink leases.
"As leasing activity begins to rebound in the next two quarters, the market will achieve greater price awareness with property owners gaining a better understanding of the new normal," wrote Aaron Wong and Alexander Quinn, analysts at JLL.