Who is Really Hurting the Recovery of The Commercial Real Estate Market in San Francisco
Jul 27, 2022
There’s been a lot of media attention around what technology companies are doing to get their employees back into the office. According to a recent report by the City’s Controller’s office, more than 20 percent of office space is sitting empty in San Francisco. That’s up from about 7 percent in the first quarter of 2020.
Many businesses have decided to surrender their current office space altogether and have put them up for sublease, while some have downsized, and some have moved into a more temporary coworking space until the market has a chance to stabilize.
Still, further attention has been placed on the hybrid work model where firms are asking employees to come into the office only two or three days a week, and in some cases–only two to three times a month. All of which does not help San Francisco’s office market in its dire need to recover from the pandemic.
However, tech firms still only represent less than 30% of all office tenants in San Francisco. Conventional businesses are still the majority and are having the most difficult time getting employees to show up to the office at all.
Law firms and accounting firms for instance were the first in January to ask employees to come back to work and they simply said “no.” From senior attorneys to clerical staff, the response was the same. If you require them to come back to the office full time, they will simply quit.
Unlike the allure of working in tech, conventional businesses pre-covid were already having a hard time recruiting younger candidates to choose a career in an older, well- established industry.
For example, accounting firms in the city simply cannot find help partly because very few college graduates are becoming accountants and if they are, they prefer to work in-house for a tech firm and get paid a generous salary than work for entry level salaries at a big accounting firm.
Earlier this year, conventional businesses received major push back from their employees when asking them to come back to the office. In order to maintain talent, most have allowed their employees to continue working remotely.
As a result, since April San Francisco’s office market began to flatten out again. It became very apparent that those firms that reopened their doors had brought all the employees that they were going to be able to bring back by then and that has left San Francisco’s downtown office market in the toilet.
With a flatten office market service retail operators expecting to see their businesses finally reopen quickly learned that the market is still not attracting enough foot traffic to entice their businesses to reopen or new businesses to open in our numerous vacant storefronts.
The dead office market has had a devastating impact on retailers in Union Square as pedestrian traffic still only trickles in.
There are no clear solutions here. Conventional businesses had still found a way to operate remotely and remain efficient. It’s now been over two years and workers simply have found a new work environment that they have adapted and obviously like.
Elon Musk tweeted recently about a luring recession, saying it will actually be a good thing. “It has been raining money on fools for too long. Some bankruptcies need to happen. Also, all the Covid stay-at-home stuff has tricked people into thinking that you don’t actually need to work hard. Rude awakening inbound!”
He may be onto something. Until employers gain the edge over their workers again, I don’t see our office market rebounding anytime soon.
Image via Pexels
Written by: Hans Hansson
Hans Hansson is President of Starboard Commercial Real Estate. Hans has been an active broker for over 35 years in the San Francisco Bay Area and specializes in office leasing and investments. If you have any questions or comments please email [email protected] or call him at (415) 765-6897. You may also check out his website, https://www.hanshansson.com