Over the past decade, startups from Silicon Valley have migrated north to make San Francisco the nation’s most popular tech hub. The city’s streets were bustling as crowds – mostly technical – workers walked or took Ubers to their next meetings.
Then the COVID-19 pandemic hit and everything came to a halt. Now, more than two years and several vaccines later, the office landscape in San Francisco has still not recovered and the city’s streets are eerily quiet.
If you think it’s even scarcer than other cities you’ve visited lately, you’re right. San Francisco sees lowest office worker turnout rates in the United States, according to Colin Yasukochic, executive director of real estate brokerage CBRE’s Tech Insights Center. Silicon Valley is not far behind.
Turns out the region’s heavy reliance on tech workers has also slowed the recovery, with many local workers continuing to push for remote work and employers reluctantly allowing it.
Atch companies, said: Yasukochi, have beene very accommodating in terms of flexibility and not forcing their employees to come back for several days. Some certainly have [asked staffers to come back]. But what their policy is and what their compliance is are two different things.”
He added: “They say you have to be back three days a week, and if you’re only back two days a week, or one day a week, or not at all, what are they doing to enforce that? And the answer to that question is: not much at the moment.”
Why tiptoe around the issue? Well, despite the tech industry having laid off tens of thousands of workers in recent months, Yasukochi believes that a still strong labor market that offers workers plenty of options has “a disproportionate amount of influence” on remote work policies.
As he explained, “It’s still very hard to hire people, unemployment remains quite low, tech workers have traditionally been hard to hire, and so many employers are concerned about accelerating the normal turnover they already have.”
In short, they are afraid. And it’s not just startups that worry about losing employees. Some of the largest and most powerful companies have withdrawn, or at least postponed, their plans to go back to work because of the setbacks they faced from their workforce. Examples include Apple and Google.
So how low are office worker attendance rates in San Francisco?
According to Kastle Access ControlIn mid-to-late August, San Jose had the lowest turnout rate at 34.8% compared to pre-pandemic levels. San Francisco wasn’t too far behind, at 38.4%, including the East Bay and Peninsula. By contrast, the turnout rate of emerging technology hub Austin was 58.5% in mid-August.
Supply has risen sharply, rents have fallen only slightly
Despite so few employees going to the office and the amount of supply in the market in SF has risen dramatically, rents have fallen only 13.1% since the first quarter of 2020 – from a record high of $88.40 per square foot. annually then to $76.86 in the second quarter of 2022, according to Yasukochi.
It’s amazing, considering the San Francisco office market was 4% vacant. It is now 24% empty.
Meanwhile, the vacancy rate in San Jose stood at 6% at the end of 2019. They are now at 12.5% which is “not very high relative to the city”. noted Yasukochic. And office rents have remained the same compared to the end of 2019.
If you’re curious as to why San Jose outperforms its northern neighbor, Yasukochi says it’s down to the kind of businesses in both cities. While San Jose is home to hefty companies like eBay and PayPal founded more than two decades ago, San Francisco has a higher concentration of less established startups that had a harder time surviving and thriving during the pandemic, from companies dealing with mobility and transportation to retail stores and restaurants.
“When there was a shutdown, the company went south, and although they have since recovered, many have had layoffs and reduced office space,” he told gotechbusiness.com. “And even when many companies decided to start working remotely first, they needed much less office space than before.”
Anyway, the employees still have the upper hand for now. But gradually things will change, Yasukochi believes.
“The pendulum tends to swing in different directions based on different market conditions,” he said. “Eventually we will start to see more influence in the hands of employers because the job market may be loosening up a bit, although the job market is not intended to change drastically in the short term.”
In the meantime, the question on many people’s minds – with an ongoing housing shortage and an oversupply of office inventory – is why aren’t more office buildings being converted into homes.
Yasukochi suggests some of the space could potentially be remodeled in the future, but that’s too bitter a prospect for commercial building owners right now.
“We areIt’s not even close to that, because the value of these buildings has to be drastically reduced,” Yasukochi said. “If you bought your building at a certain price — say $700 or $1,000 per square foot, you don’t want to sell for $200 or $300 per square foot to make a residential conversion feasible.”
“It makes perfect sense to use it more productively, but tell that to the person who paid for it — that they should take a loss, right?”
Perhaps landlords have reason to be hopeful. Not all employers in San Francisco usually allow employees to work from home.
The Information recently reported that startup To merge “has chosen to go all in on personal work.” Company – which aims at B2B companies a unified API to access data from dozens of HR, payroll, recruiting and accounting platforms — requires all of its employees to be in the office five days a week, a rarity in the Bay Area.
Meanwhile, Axios recently reported on its customer service startup, Front “welcomed employees back to Mid Market headquarters at the end of June.”
About 75% of the company’s 450 employees, unless exempted, are required to come to the office on Tuesdays and Thursdays. The remaining 25% “will either be in the office full-time, completely remote or largely remote,” Axios reported.
Front Chief People Officer Ashley Alexander told gotechbusiness.com that the nine-year-old company — originally founded in France — has had an office in San Francisco for about eight years.
Front reopened its US offices on a voluntary basis in March 2021. After “extensively” polling his team to find out what they wanted in a new post-COVID work structure, Front decided it made the most sense to require people to come to the office on the same dayseven if it’s not every day.
“We wanted to be aware of this, because with only a handful of people spread over a large empty office you cannot achieve what our team is looking for. We want to make sure employees feel the buzz, energy and warmth of their team around them on the days they come to the office,” she said. “If everyone could choose their own days to come in, we’d have small groups every day of the week — and workers who haven’t organized when they come in together may never meet.”
Still, she acknowledged that Front has only been working on its new approach for a few months and is “watching closely the process of returning to the office” to see how it needs to adapt and adapt.
How this tug-of-war will play out over time remains to be seen.