Yelp's Entire SF Office Listed for Rent as Downtown Vacancies Pile Up
Updated: Feb 5, 2021
Yelp, which occupies 14 floors in a South of Market skyscraper, may be looking to downsize. The company's landlord listed the entirety of that space for lease
It's the latest tech firm seeking to significantly reduce its footprint in the City, following Pinterest, Dropbox and others
According to a recent survey, 63% of local tech firms said they planned to, or already have, downsized their office space in the SF Bay Area
San Francisco is expected to have the worst-performing office market this year, with one research firm projecting a 22% drop in rents and occupancy
Yelp, which currently occupies 14 floors in a South of Market skyscraper, is the latest San Francisco tech company seeking to offload its downtown office space.
The company's landlord listed all of those floors for lease on Wednesday, the San Francisco Business Times first reported. Yelp's lease is up this year, and It's unclear how much space it plans to retain in the City.
Yelp joins Pinterest, Dropbox, Twitter and numerous other firms that have sought to offload significant chunks of their San Francisco office space, either due to remote work policies, business downsizing or some combination of the two.
Yelp, which relies on advertising revenue from local businesses, saw its revenues plunge last year amid widespread closures. Others, such as Reddit and Coinbase, have opted to make remote work policies permanent.
According to a survey by sf.citi, a technology trade association in San Francisco, 63% of tech companies surveyed said they plan to or already have downsized their office space in the SF Bay Area. 76% said that the pandemic changed their plans for growth in the area, and 59% cited City regulations, taxes, and policies as a factor in their decision-making. Many described plans to switch to a decentralized work model, with a substantial portion of their employees working remotely on a permanent basis.
“Over the last decade, San Francisco policymakers have tightened the City’s reliance on the tech industry for critical revenue—while doubling the City’s budget," said sf.citi's executive director Jennifer Stojkovic. "We’ve all known a breaking point was coming and now the City will have to grapple with the consequences.”
For San Francisco's budget, it's unclear what the precise tax implications are of the many reported instances of downsizing in recent months -- particularly given recent changes to the City's tax code, which repealed payroll taxes in favor of higher gross receipts taxes. Those changes were enacted through Proposition F in November 2020 and just took effect this January.
Depending on how the business is classified, big companies can contribute millions of dollars in tax revenue to the City's coffers. A 2019 lawsuit filed by Square against the City and County of San Francisco gave a glimpse into the company's tax bill: In a series of filings and appeals, the company sought $8.4 million in refunds for its fiscal 2016 and 2017, which represented a portion of the gross receipts taxes it paid under the City's tax rules for financial services companies, which are taxed at a high rate compared to other types of businesses. (Square disputed that classification, and the lawsuit was eventually settled; the company sued the City again last August.)
Business taxes contributed $1.1 billion to San Francisco's general fund in 2019, its second-highest source of revenue behind property taxes.
Meanwhile, the prospect of long-term or permanent remote work spells an uncertain future for SF downtown.
San Francisco is expected to have the worst-performing office market this year, with around 14 million square feet of office space currently sitting vacant. According to a projection by Green Street, SF office rent and occupancy are expected to drop 22% in 2021. The second-worst market is New York City, with an expected 17% decline.
Prior to the pandemic, about half of the City's employment base commuted in from other parts of the Bay Area. The absence of those commuters has seriously impacted nearby businesses, with sales tax losses hovering around 70% in the heart of downtown according to the SF Controller.
The Financial District has also seen some of the most business closures of any neighborhood, according to statistics from the SF Chamber of Commerce.