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Economic recovery elusive in SF as workers, tourists stay away

The two pillars of San Francisco’s economy—tourism and office workers in the city’s downtown core—are not rallying the way have in most cities around the country, according to a new report from the Office of the Controller.

The lack of significant recovery in these two sectors has meant that sales tax in San Francisco is still down over the past two years, according to Ted Egan, the city’s chief economist. That is in contrast to nearly every other county in California, which has seen their sales tax grow in the last year. 

Lack of tourists is a major problem for San Francisco. The industry generated more than $8.4 billion annually in economic impact prior to the pandemic, but its recovery has been erratic due to successive waves of Covid infections and resultant shutdowns. 

While there has been a general uptick in international and domestic airplane travel at SFO, recovery in passenger boardings still lags behind most other major metros. The same holds for other indicators of the city’s hospitality industry, including the monthly hotel revenue per available room. Throughout the entire pandemic, hotel occupancy has only briefly breached 50%.

Office reentries, as tracked by access control company Kastle Systems, have seen seasonal variations, but what is clear from the data is that the San Francisco Bay Area is well behind on return to the office when compared to Austin, Los Angeles, New York and other comparable regions. 

Data shared by the Controller’s Office illustrated that San Franciscans specifically spent less time away from home and at work than the state as a whole. According to the Controller’s Five-Year Financial Plan, the city projects that it will see a 15% reduction in payroll due to employees telecommuting from home when work schedules stabilize in 2023. 

This has a number of downstream effects including people moving from San Francisco (and taking their tax dollars with them), commuting office workers not spending on local businesses and a decrease in economic activity that surrounded the office, like building maintenance and supplies.  

Then there are the transit and traffic indicators. Average evening freeway speeds, which function as an indicator of commuter-driven traffic, have jumped in the last month and currently sit at just north of 40 miles per hour, slightly above the 32 miles per hour average in 2019. 

Bay Bridge and Golden Gate Bridge monthly traffic volume into San Francisco has also ticked up to around 4.8 million, below the 5.8 million pre-Covid average though nearly double the April 2020 nadir. BART ridership still sits at less than 25% of the volume seen in 2019. 

While some local labor metrics can be considered positive indicators of the economy—particularly an unemployment rate under 3%—that’s not the whole story. For example, the number of total employed residents sits at around 550,000 people, below the numbers seen prior to the pandemic. 

“That means there aren’t very many unemployed people around, but it does mean we’re missing a piece of the labor force. This could mean people in San Franciso who are not working or looking for a job or people who have relocated out of San Francisco,” Egan said. 

So what does that spell for the narrative about the exodus of businesses and jobs away from the region? Egan said there isn’t much evidence at this point of that trend happening in a major way.

“The only industry that’s doing better in San Francisco than it was before the start of the pandemic was the tech industry,” Egan said, noting that 2021 saw San Francisco startups get a bigger portion of overall Bay Area venture capital than ever before, Egan said. It was a boom year for VC funding in general, though recent data suggests that may be slowing along with the stock market.

Even as Omicron cases locally continue their decline after peaking last month, Egan said he’s still waiting for an inflection point for the city’s economy. At the moment, at least, the virus is still driving the economy.

“At some point we’ll be talking about endemic instead of pandemic and businesses will take that as a cue to encourage people to start going back to the office,” Egan said. “We’ll see a jump in that return to the office that’s kind of the new normal. I don’t expect that we’re going to jump back to 100% of where we were before the pandemic, but we will see a jump to over 40-50%.”

Kevin Truong can be reached at kevin@sfstandard.com