The Bay Area's Long Road to Post-COVID Recovery
The Bay Area's Long Road to Post-COVID Recovery
San Francisco, facing a myriad of obstacles, may take the longest among major urban areas to recover from the pandemic.
There has been growing backlash in San Francisco. In February, more than 70 percent of voters recalled three board of education members and in June, voters successfully recalled their District Attorney in what was viewed as pushback to criminal justice reform nationwide. In The Atlantic, one commentary went as far to opine:
There is a sense that, on everything from housing to schools, San Francisco has lost the plot—that progressive leaders here have been LARPing left-wing values instead of working to create a livable city. And many San Franciscans have had enough.
But beyond the political strife, the city has another problem: shifting remote work will likely have an outsized effect on San Francisco’s economy compared to other major U.S. cities.
The Bay Area has long been a hub for tech workers, and as such, many companies have their headquarters or large offices in the area. But with the rise of remote work, that is beginning to change. Salesforce, the largest private employer in the city, has around 10,600 workers — the company now has a standing policy that lets employees decide where they want to work.
As more people move away from the Bay Area, San Francisco is likely to see a decrease in tax revenue. In the main commercial corridor, sales tax revenue was down about 40% in 2020 and 2021 compared to 2019 collections. While the city expects a broader budgetary surplus over the next two years, it recognizes its assumptions carry risks:
The budget assumes an economic recovery will drive tax revenue growth of $557.0 million in FY 2022-23 and $305.9 million in FY 2023-24. While these assumptions track to our economic and financial projections, they are subject to significant uncertainty.
According to a Pew Charitable Trusts study, continued loss of commuters after the pandemic could lead to a smaller municipal tax base and placed San Francisco among the cities with the greatest likelihood of revenue loss.
San Francisco’s Downtown is Slow to Recover
An alarming story in the SF Chronicle noted, “The downtown area, the city’s primary economic driver, is teetering on the edge, facing challenges greater than previously known.” They cite data from the Controller’s Office that office work was responsible for 72% of the city’s gross domestic product before the pandemic and heavily concentrated in the Financial District, the Market Street corridor, the Embarcadero and Mission Bay.
Bay Area office occupancy is consistently among the lowest of U.S. cities tracked by security company Kastle Systems — only 34% of employees are back in the office in the week ending June 8. According to Cushman and Wakefield, the citywide overall vacancy rate at the end of Q1 2022 was 21.7%, up from 19.9% in Q4 of 2021 and from 18.7% one year ago. The city also faces continued headline risk as recognizable companies relocate or go fully remote.
An analysis by Brookings found within metro areas of large populations of office workers, trips to workplaces remain well below pre-pandemic levels. None of the 192 metro areas analyzed had met or exceeded their January 2020 levels of workplace visits. Of 53 very large metro areas with populations over 1 million, San Francisco work trips ranked last at -32.7% and last on retail vacancies.
Rents Are Not Recovering Like Other Cities
Despite the fact that rental rates in major U.S. cities reached historic highs last year, San Francisco's recovery has fallen behind. In a Wall Street Journal Article, landlords and brokers pointed to a variety of reasons, including exorbitant pre-pandemic rents and rent control rules, as well as a recent exodus of employees.
According to data from home-search website Apartment List:
Of the 100 largest cities nationwide, San Francisco’s rent discounts are the steepest.
Residents are paying less for an apartment than they were before the pandemic — median rent for a one-bedroom apartment hovers just over $1,900 per month, still about 3% below the rates at the beginning of the pandemic. As apartment vacancies soared during increasing telework, San Francisco struggled to attract renters drawn to cheaper rents in other parts of the country and state. By comparison, the median rent in Manhattan was $4,000 in May, a record attributed to people returning to New York City.
From 2020 to 2021, U.S. Census Bureau data showed San Francisco and San Mateo County were near the top of the list of counties with 100,000 or more residents seeing the biggest decreases in population.
Revitalizing San Francisco’s Commercial Corridor
San Francisco is not lost and the death of cities has been over exaggerated, but the struggle to regain lost footing is real. It may take longer for San Francisco to recover that other major U.S. metros. To aid in the recovery the Mayor proposed in May including in their budget:
$10 million for direct grants and loans aimed at helping small businesses.
$10.5 million over the two years for the City Core Recovery Fund to support events, public space and ground floor activations, as well as a city-wide marketing campaign.
$25.4 million over the next two years to continue a program that provides community ambassadors who are focused on creating more welcoming, clean, and vibrant environments .
$2 million for SF Welcome Ambassadors and Retired Police Community Ambassadors stationed in key transit and tourist nodes.
At the online event, called “Renewing San Francisco’s Economic Core,” a restaurant owner pitched that “one Friday each month, local businesses in the downtown area could simultaneously host event that start when the workday closes.”
The solution to the problem of remote work for commercial centers is not clear, but it is evident that the Bay Area, like other cities, needs to find a way to adapt to the new reality. Otherwise, it may face long-term financial risks. As the saying goes, change is inevitable - but growth is optional. The Bay Area has always been a place of innovation and it will need to innovate once again to solve this problem.
Any opinions expressed herein are those of the author and the author alone.