The pandemic has taken the San Francisco commercial real estate market to new lows as work-from-home policies and office closings slowed the expansion of the Silicon Valley-fueled business to numbers that have not been seen in at least three decades.
According to real estate agent Cushman & Wakefield, new office rental activity in 2020 fell by an astonishing 71% year-on-year from 7.7 million to 2.2 million m² – the lowest level since the early 1990s. Tenant demand also halved during the pandemic, from 6.6 m² to 3.3 m².
“The vacancies have obviously grown significantly,” said Robert Sammons, senior director, Bay Area Research, Cushman & Wakefield Tenants, not a property manager. “That has never happened in San Francisco,” he said.
The figures show that the tech companies that fueled the city’s office real estate boom – a boom that contributed to the state’s affordable housing and construction crisis – are reassessing the future of office culture and working from home.
Google will leave its employees at home until at least July, while Pinterest paid nearly $ 90 million to cancel a lease on an undeveloped 500,000-square-foot office that is no longer needed. Facebook has announced that at least half of its employees will be working remotely in the next five to ten years, while Twitter has announced that employees who so choose will be able to work from home “forever”.
In September, Twitter listed nearly 105,000 square feet of its mid-market headquarters for sublet.
What all of this means for San Francisco and its future as the technology capital is still unclear. A survey of thousands of technicians in May found that two in three employees would consider moving out of the Bay Area if they had the opportunity to work remotely indefinitely. But Sammons said it was too early to say whether the pandemic had made a lasting impact on the tech industry or the structure of office life in San Francisco.
According to Robert Sammons, office and apartment rental prices have fallen, which could pull people back to the city. Photo: Jeff Chiu / AP
When the spread of coronavirus vaccines began, Sammons found that demand for tenants in San Francisco had returned to 4 square meters. “We’re seeing a change, a mental change if you will,” he said. “Now that vaccines are introduced, people can see the end. They realize that they may want to reoccupy their spaces and keep growing. They have more hope that this will be behind us by the end of this year. “
Another sweetener of the pot is that rents for both office space and apartment buildings have now fallen. Sammons believes this will pull people back to San Francisco and back to their offices.
“It’s about work culture,” said Sammons. “It’s about working with people who are doing the same thing as you. When this is all behind us and the offices are open again, will there be this train to be back in this competitive mode and create the environment in which they have to collaborate with others? It’s a tough question to answer. But I still think that there is still this desire and this competition. “
The city had a complicated relationship with Silicon Valley, and the abundant wealth of technology deepened the severe racial and social inequalities that existed long before the second dot-com boom. But the departure of that wealth – at a time when San Francisco is forecasting a budget deficit of $ 653.2 million – could also be catastrophic.
Sammons doesn’t see it that easily. Venture capital funding reached record highs in the Bay Area this year, he said. “There is still a huge contingent of technicians in the Bay Area,” he said. “The most important tech players have and will have their headquarters here. The feeling that there are still so many tech players, big or small, that if you don’t like it at Company A, you can switch to Company B or start your own company – that feeling is still there, yours Opportunities are greater here in San Francisco than in other markets.
“It will be a while before San Francisco is convinced,” said Sammons. “But we are still a technology market. We will remain one of the tech capitals in the world. As for money in this market, there is still a lot of churn and will continue to do so. “