Tech stocks are soaring and high-profile initial public offerings are set to mint millionaires. Yet in San Francisco, the boom times are over.
The resurgent coronavirus has thrust the tech hub back into lockdown. Offices sit empty as work-from-home policies stretch indefinitely. While this week’s share sales of hometown companies Airbnb Inc. and DoorDash Inc. would typically have the city girding for a flood of wealth, many workers have already fled for the suburbs, Lake Tahoe or beyond.
Nowhere are the effects more pronounced than in the real estate market, where apartment rents are plunging the most in the country.
The median rent for a studio apartment dropped 35% last month from a year earlier, to $2,100, while costs for one-bedrooms were down 27% to $2,716, according to data set to be released this week from Realtor.com. The declines are steepening from earlier in the pandemic, a sign that people with the flexibility to move are leaving an area that’s still among America’s priciest for housing.
San Francisco stands to be among the U.S. cities most affected by the trends brought on by Covid-19, even as much of the industry that drives its wealth thrives. While many New York finance firms are pushing for people to return to the office, tech companies are more fully embracing remote work, raising the prospect of a longer-term transformation of an area known as much for its expensive real estate and devastating inequality as for its beauty and offbeat character.
Tech “companies have been among the most flexible with allowing people to work remotely and a lot of workers are taking advantage of that,” said Danielle Hale, Realtor.com’s chief economist. She expects San Francisco’s apartment rents to eventually recover, though it depends on how quickly people return to the office.
Some companies are taking steps to scale back office space, a sign the virus upheaval won’t be temporary. San Francisco’s office-vacancy rate has roughly doubled this year to 8.3%, driving asking rents down almost 9%, according to real estate firm CBRE. Earlier this year, Pinterest Inc. shelled out almost $90 million to terminate its lease in a new downtown tower because it is “rethinking where future employees could be based” in a post-Covid era. Housing startup Opendoor paid $5.2 million to end its downtown lease early, a regulatory filing showed.
Nearby, Silicon Valley giant Hewlett Packard Enterprise Co. said last week that it’s moving its headquarters to Texas, joining companies including Palantir Technologies Inc. and Charles Schwab Corp. in relocating their main offices out of California to lower-cost states.
Hans Hansson, president of San Francisco office broker Starboard Commercial Real Estate, said he expects the impact of the pandemic on the city will be similar to the period after the 1989 earthquake that killed more than 60 people and left the area in a years-long period of uncertainty.
“We rely on tech,” said Hansson, who gets much of his business from early to mid-range startups with downtown offices. “They’re gone.”
The city’s economy has also been hit hard by coronavirus lockdowns, hurting people’s ability to make payments amid business shutdowns. Apartment dwellers are seeking rent reductions and almost 9% didn’t pay November’s rent in full, according to data collected by the San Francisco Apartment Association, which works on behalf of landlords. Rents for downtown apartments near office buildings have been “decimated,” while more residential areas have been comparably stable, said Charley Goss, the group’s government and community affairs manager.
That suggests more movement among people who live near where they work. In a survey of tech workers by the anonymous professional networking site Blind, about 20% of the nearly 1,200 respondents said they’ve moved out of San Francisco. More than 10%, or 124, said the relocation is permanent.
Still, San Francisco has long been home to booms and busts, and each time has emerged prosperous. The city has a long history of attracting people for reasons other than professional ambitions, including its liberal politics, natural beauty and prominent gay community, said Jed Kolko, the San Francisco-based chief economist at Indeed. That’s been subsumed in recent years as tech companies came to dominate the economy and prices soared.
While Kolko said he still thinks San Francisco will remain a tech center, remote work and cheaper rents means the reasons why people move to the city may change.
“San Francisco and California had their biggest inflow of population just after the Great Recession, when home prices became relatively affordable,” Kolko said. “It could be that there’s a sustained drop in real estate prices that draws people in.”
Audrey Yang, co-owner of a boutique called Two Birds in the Noe Valley neighborhood, said she hopes potential newfound affordability will attract some of the San Francisco types that were more common when she first moved to the city 14 years ago.
“What drew me to San Francisco is you could really be whatever you want to be,” said Yang, 37. “You could be the naked guy in the Castro, and no one blinks an eye, you know? But honestly I think tech is here to stay.”
Falling prices also benefit those workers who couldn’t afford the city’s housing market. Robert Dumas, 58, drives for Lyft and Uber in the Bay Area but lives two hours away in Los Banos because it’s cheaper. The commute is so long that he often spends weeks and even months at a time away from home, sleeping when he can and showering at gyms or hotels when he’s not working. Now that rents are falling, he’s thought about moving closer.
“They haven’t come down enough to make a difference for me yet,” Dumas said, but he thinks they’ll continue to drop.
“Every week I take more and more people to the airport,” he said. “I see more and more moving trucks.” — via Sean Tyler Chan