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SF downtown is still dead—but job listings, venture capital point to a possible rebound

If you haven’t been downtown much lately, you’re not alone—on a typical weekday, the once-bustling financial center of San Francisco is nearly as deserted as it’s ever been since the onset of COVID-19 in March 2020. 

Despite high vaccination rates, San Francisco ranks far behind other U.S. cities in office occupancy as workers primarily remain at home most weekdays. That ripples across the city’s economy and tax base, affecting employment, real estate and potentially even property tax revenue, said a group of economists and analysts on Wednesday.

“The longer people stay away from offices downtown, the bigger the fiscal hit to the city,” said Ted Egan, San Francisco's chief economist, at an event hosted by the Building Owners and Managers Association of San Francisco. 

Sales tax revenue in San Francisco’s downtown core is still more than 50% below pre-pandemic levels, said Egan, adding to a broader erosion of the city’s business tax base. And it’s going to take more than a vaccine to lure workers back to the office all or even part of the time. 

According to Kastle Systems, a building access firm, office occupancy in San Francisco hovered at about 20% in August—the lowest rate in the nation, and reflecting only a modest increase since the spring. Weekday exits at downtown BART stations—Embarcadero, Powell, Montgomery and Civic Center—were still down 90% in the second quarter of 2021 compared to the same period in 2019. 

Tourism is also lagging behind other cities, with enplanements at San Francisco International Airport at about 40% of pre-pandemic levels, the lowest of any airport in the western U.S., according to a report published on Wednesday by the Controller’s Office. 

That spells continuing gloom for downtown retailers, who generate a disproportionate chunk of San Francisco’s sales tax revenue and rely heavily on commuters and tourists. Retail vacancies in Union Square surged to 14% as of last quarter, with sublease availability exceeding 20%, according to Cushman & Wakefield.     

“I’m a little speechless,” said Kazuko Morgan, vice chair of retail services at Cushman & Wakefield in San Francisco. “You see on every other block: restaurants closed, coffee shops closed, service retailers closed. What they really need are office populations and customers to come back.”

Neighborhoods are a “completely different story,” Morgan added. 

“If you go to North Beach, the Marina, the Haight—it’s like there’s no pandemic. Some of the restaurants are seeing their best sales ever with [the addition of outdoor space],” she said. 

Tourism and in-office work are expected to increase in 2022, though the pace and strength of any recovery remains a mystery. Commercial real estate firms are pouring money into redesigning office spaces for a post-pandemic world, said Matt Griffin of Kilroy Realty. With some companies opting to upgrade office space for the long term, amenities like large open-air spaces are emerging as necessities for many tenants, he said. 

“Flight to quality is really the first phase of activity in recovery in the market” he said, adding that leasing activity in the highest-quality office spaces is at “near pre-pandemic levels.”

In the meantime, city officials are exploring possible avenues to fill space and lure visitors back to downtown. Those include increased public safety measures, such as more foot patrols and “ambassadors” in and around downtown, a weekly Union Square concert series sponsored by the city and beautification projects. At a Board of Supervisors hearing in May, policymakers discussed a few ideas for reviving downtown—such as creating more pedestrian spaces or incentivizing nonprofits to lease ground-floor retail—but no concrete policy has materialized yet. 

There’s cause for long-term optimism in San Francisco’s downtown sector, said Alexander Quinn, director of research at JLL. 

The firm reported that full-time, non-remote job listings have bounced back to pre-pandemic levels in June, suggesting that more companies are planning to staff up in-person in San Francisco in the coming months. 

Moreover, the pandemic did nothing to dampen venture capital activity in the Bay Area—in fact, it may have spurred more deals as successful startups sought cash to offset any downturns in their businesses. San Francisco startups have raked in $48 billion in venture investment this year, marking a record high and pointing to future demand in office space, according to Quinn. 

“Generally, VC funding is an indicator of economic activity, increased employment and real estate demand—typically, [startups] transact on a lease six months later,” Quinn said. 

“San Francisco isn’t falling into the ocean,” he added.