SF Mayor Pivots To Entice New Companies To Move Downtown

San Francisco Mayor continued to lament office workers in the city opting to work remotely rather than return to downtown offices in an interview with Bloomberg earlier this week, pushing her and the city to pivot more towards attracting new businesses rather than continue to entice old workers to return.

Prior to COVID-19, San Francisco’s office occupancy percentage was constantly at or near 100%, with many companies, especially tech firms, fighting for office space. However, following the beginning of the COVID-19 pandemic in March 2020, occupancy free-fell to under 10%. Throughout 2020, the rate struggled to stay above 10% as companies refused to move back into offices because of the high number of restrictions, as well as more companies liking the new remote work setup. This led to downtown businesses, reliant on people coming into the city for work, being decimated as a result.

2021 and 2022 proved to be even more of a challenge. As COVID restrictions gradually receded and work began more in earnest, more and more companies eschewed traditional offices, with many finding savings in not renting expensive San Francisco office space. In 2021, office occupancy fluctuated between 10% and 30%, while this year office occupancy has yet to hit the 40% mark. Salesforce Tower, which overtook the Transamerica Pyramid as the tallest building in San Francisco last decade, still  is mostly vacant as a result.

While good for companies leasing the space, the high amount of open had negative issues, including many downtown business struggling to recover with office worker customers dropping and the city facing a steep cut in tax revenue due to the lack of downtown businesses paying in.

Mayor Breed and other city leaders began a huge effort to bring back these businesses earlier this year. However, with the city refusing to negotiate on taxes and other factors, high percentages of vacancies remain. This week, Mayor Breed said that the city would be looking for other tenants and would “reinvent, recreate and reinvest” in the high number of vacant commercial properties in the city, as they fail to foresee the high number of people wanting to work from home.

““Life as we knew it before the pandemic is not going to go back. This whole work-from-home thing is here to stay. We thought people would miss working around other people, but they do not,” said Mayor Breed, who also noted that the city had gone through high office vacancy rates before, such as during the Dotcom bust twenty years ago. “This is not unfamiliar territory, when all of a sudden the city becomes a ghost town.”

Breed specifically noted how companies like Salesforce have remained flexible to workers wants and needs, citing them as a major part of the city’s problem.

“[Salesforce CEO Marc Benioff] is very supportive of the city, and continues to contribute that support to schools and to other great causes, but the building is empty, and that’s a real problem,” added Breed. “Ultimately I can’t force or mandate, right? These companies are making the decisions that they believe that are in their best interests.”

Low office occupancy in San Francisco

Instead Breed said that the city would be going after other industries, such as biotechnology and green technology, to help refill offices in the city.

While proactive, many experts noted that the pivot in enticing businesses may not work, as other cities have worked to entice similar businesses in recent years and have a head start.

“New York, Austin, Miami, their rival Los Angeles, Seattle, even Chicago and Pittsburgh, have all been going after that market,” explained Michelle Duggan, a building occupancy researcher, to the Globe on Wednesday. “Most of those places are cheaper, have better weather, offer a better quality of life, or some combination. The problem isn’t companies and workers not wanting to go back to offices. It’s just that there is no benefit to them doing so. Many workers prefer working from home now, and cities need to offer something to bring them back. Many have been going down on taxes or rent for example. San Francisco is just saying ‘Please come back’ with little else.”

“LA and Austin have really been promoting hybrid schedules of on and off office use during the week to pretty good success, which San Francisco has not been promoting. But also more to that, San Francisco has high crime, high drug usage in the streets, and a high homeless population to deal with. That’s not exactly attractive to prospective companies. If San Francisco was to launch a company coup and bring an iconic company to the city, pretty much a reversal on what has been happening in California in recent years, taxes and quality of life would be the huge points to make that happen.”

“It’s not the companies. You can’t fault them for doing what is best for business. It’s the city. And when even New York and LA are innovating in keeping and bringing businesses in, San Francisco needs to take a good look and recognize that they are the problem first and foremost. But, with what the Mayor said, they aren’t there yet. So vacancies will continue.”

Further reports on office vacancies in the Bay Area will be coming out in the next few months.