'GREAT CITIES ALWAYS RECOVER ’
Wells Fargo senior economist explains how he thinks Bay Area will be able to quickly bounce back from pandemic
Mark Vitner doesn’t need the monthly unemployment numbers or quarterly economic reports to know the U.S. economy is coming back from the sharp pandemicdriven recession.
Vitner, a senior economist at San Francisco-based Wells Fargo, has real-time data, ranging from the number of restaurant reservations to how often keycards are swiped at office buildings, all pointing to a robust economic recovery. His bank is forecasting 6.4% annual GDP growth nationally for 2021. But there is no shortage of challenges ahead. With mounting pressure from Austin, Texas, Seattle, Miami and other cities vying to be the next Silicon Valley, a devastating year for small businesses and a potential rental debt cliff in the future, here’s what Vitner thinks is in store for the Bay Area. This interview has been edited for length and clarity.
Q What are you looking at to determine the strength of the economic recovery in the Bay Area?
A Well, in the Bay Area, particularly in San Francisco, less so in the East Bay and South Bay, in San Francisco we need the office workers to return in order for those service workers to have customers to serve. And we also need to see business travel pick back up, and leisure travel
pick back up. And I think that in the case of San Francisco, I think both are likely to lag. I think that leisure travel will come back first, but business travel’s not likely to come back in a big way until 2022.
And most folks haven’t figured out how they’re going to return to the office just yet. It’s a little more problematic when you get to dense areas like downtown San Francisco and in Manhattan. And I think those two areas are likely to remain the most challenged because so many folks rely on mass transit. And the areas that seem to be coming back the fastest are those where folks predominately commute in automobiles. And that may be why in the Bay Area, the East Bay and South Bay area are doing better than San Francisco.
Q Is the damage that the pandemic caused to small businesses going to weigh down California’s overall recovery?
A It will be a significant weight on the economic recovery. I think small businesses will recover because they may not be the same small businesses, but other people will start small businesses eventually and the sector will recover. But for most small business owners, the business is so much more than just what people see, a storefront or office or whatever line of work that they’re in. It’s their whole life’s work and it’s very intertangled with their personal finances and I’m afraid that the pandemic wiped out a lot of folks, particularly in minority communities. African American and Hispanic-owned businesses were particularly hard hit. We saw that about 30% shut down on a permanent basis.
I think that that’s going to be one of the factors that will slow the rate of improvement, but we’ve got a whole lot of money being thrown at the economy and it’s likely to be large businesses (who benefit). In the area of restaurants, a lot of the independent have gone under restaurants and so the chains are likely to dominate the early parts of the economic recovery and many of them are staffing up right now in a pretty significant way.
Q A lot of people and businesses have built up significant rental debt on homes and commercial properties during the pandemic. Are you worried about the economic fallout of those bills coming due?
A My concerns are multifaceted. Certainly, we’re concerned on an individual basis and what that’s likely to mean to the property owner. But from an economy-wide view, is this a systemic problem that is going to lead to a credit crunch? The big concern on rental delinquencies is, will this cause defaults on the debts of the property owners and lead to a That broader is something credit crunch? that would threaten the integrity of the economic recovery. I don’t think that’s likely. I know that a lot of landlords have been reluctant to take the rental assistance in the economic stimulus program because they feel the tenants that they have, have not made a best faith effort to pay their rent and as a result, they’d rather let the lease expire and let them move on rather than take partial rent.
Q On the positive side, are there unique strengths that you see in the Bay Area that will help it on the path to full recovery?
A There’s a number of things. But to start off, great cities always recover. And San Francisco is one of the world’s great cities and it will always recover. So I’m not worried about San Francisco recovering. We’ve got a number of challenges ahead of us, but a lot of those will become a little bit easier when people start returning to work and we have more eyes on the street.
The other things that made the San Francisco Bay Area such a great place for all these innovative tech companies are still in place. Stanford and Cal are some pretty big assets, you know. You’ve got two great universities — you’ve got more than just those two, but you got two really great universities there. And you’ve got this score of tech companies and all the law firms, venture capital firms. No other place in the world comes close to matching the ecosystem that exists in Silicon Valley.
San Francisco may lag a little bit. You think back to the last business cycle, San Francisco recovered ahead of the South Bay and East Bay. And this time it’s probably going to lag behind the South Bay and East Bay. That’s not necessarily a bad thing. San Francisco’s got some issues that it needs to work through, but I think that the easing that we’ve seen in apartment rents and office rents will create a lot of opportunities and I’m absolutely certain as I said earlier that San Francisco will come back greater than ever. I’m absolutely certain that it will, it’s just going to take a little bit of time.
“I think small businesses will recover because they may not be the same small businesses, but other people will start small businesses eventually and the sector will recover.” — Mark Vitner, Wells Fargo senior economist