San Francisco Chronicle - (Sunday)
Downtown S.F.’s recovery weakest in North America
“To survive in the new era of remote work, downtowns will need to diversify.”
Downtown San Francisco continues to have the weakest recovery from the pandemic out of 62 North American cities as of November 2022, with only 31% of its fall 2019 activity, based on mobile phone data, a new study shows.
In sharp contrast, the Central Valley cities of Bakersfield and Fresno saw activity from September to November 2022 surpass 2019 levels, with the second- and third-strongest recoveries on the continent. Bakersfield saw 125% of 2019 activity and Fresno saw 121%. Only Salt Lake City saw a higher rate, at 135%.
Bakersfield and Fresno have also seen continued population growth during the pandemic, in part because of Bay Area residents fleeing to the Central Valley for cheaper housing options.
Meanwhile, San Francisco has lost tens of thousands of residents in the last three years and has been at or near the bottom of the rankings throughout the pandemic, which the study’s authors from the University of Toronto and UC Berkeley have blamed on the city’s reliance on office jobs that are easily done remotely. Those include professional, scientific, and technical services, which made up 31% of the downtown workforce as of 2019, and information, which includes many tech jobs and made up over 9% of the workforce in 2019, according to census data.
“To survive in the new era of remote work, downtowns will need to diversify their economic activity and land uses,” the study’s authors said.
The slow recovery of San Francisco’s downtown has dire implications for the city budget, which has a projected $728 million deficit over the next two fiscal years, while BART and Muni transit agencies are also facing potential doomsday scenarios. The absence of workers and visitors has also strangled the business prospects of local restaurants and shops.
“The data is saying that nothing has really changed. And that means that it’s one of the cities that needs to make some structural changes,” Karen Chapple, director of the School of Cities at the University of Toronto and a study author, said of San Francisco.
She called on the city to diversify its economy through changing policies, including taxation, building codes and workforce training.
San Francisco Mayor London Breed recently pushed for office buildings to be converted into biotech and clean tech uses, jobs that typically require in-person work. But such undertakings are costly and require lengthy review processes, and no major projects have been recently proposed.
Chapple said such an effort “could be a viable thing,” but noted office to lab conversions are “super expensive.”
A more straightforward move could be renting more downtown offices for city workers and other public uses that require in-person work, she said.
“All of our data shows that public administration, education, (and) health care are what are keeping downtowns alive,” she said. “Those are the types of uses that get people there every day.”
Only 2% of downtown San Francisco jobs are in health care and social assistance, and 1% in arts, entertainment and recreation as of 2019, Chapple said.
San Francisco currently has thousands of vacant city positions, but at the same time its projected budget deficit could lead to widespread budget cuts, making any expansions into downtown unlikely. The bulk of the city’s office workforce is concentrated in Civic Center, west of downtown.
Two other key sectors helping bolster the recovery of downtown activity are restaurants and hotels, Chapple said. In the Bay Area, restaurants face a myraid of challenges, including a labor shortage, high costs and weak demand downtown. Tourism has partially rebounded in San Francisco but a full recovery isn’t expected until 2025.
The idea of converting offices to housing also faces major economic hurdles and no projects have emerged during the pandemic.
Overall, only Salt Lake City, Bakersfield, Fresno and El Paso, Texas, have seen activity surpass 2019 levels as of fall 2022, reflecting the impact of remote work depressing activity in the rest of the cities, Chapple said. San Diego was ranked fifth in North America at 99%; Sacramento was 17th at 75%; San Jose was 26th at 68%; and Oakland was ranked 49th at 49%. Chapple credited San Diego’s investment in drawing tourists and longstanding effort to build housing downtown for its strong activity.
San Francisco’s 31% activity rate last fall was a few percentage points lower compared to the prior three months, when the city had 35% activity compared to 2019, ranking it 60th overall, above Portland, Ore., and Cleveland.
San Francisco’s anemic economic recovery is reflected in other data sources: The city’s office vacancy rate, which measures the amount of space available for lease, was a record-high 27% at the end of last year, according to real estate brokerage CBRE. Security firm Kastle, which manages 2,600 buildings across 48 states, said its San Francisco metro area buildings were only 35% occupied as of last week, the second worst among 10 major U.S. cities and ahead of only San Jose.
San Francisco’s population dropped by 6.3% between July 2020 and 2021, a loss of 54,813 people and the worst of any U.S. city, according to census data.
Bakersfield grew 0.7% to 408,865 people in 2021, the highest growth rate among California’s 10 largest cities, according to a California Department of Finance estimate. Fresno grew 0.2% to 543,660 people in 2021. San Francisco’s population fell 0.8% to 842,754 during that time. (The state estimates use a different methodology compared to the federal census.) A new state report covering population change to July 2022 is expected this month.
Chapple believes that downtown Fresno and Bakersfield’s recoveries were aided by the development of new housing downtown, and cheaper prices compared to coastal California drawing in new people.
“Fresno’s worked really hard on its downtown ... and made it more livable,” Chapple said.
The study uses aggregated mobile phone data from tech firm Spectus, along with earlier data from SafeGraph.
Despite San Francisco’s lastplace ranking, Chapple believes that the city will eventually thrive again, though it faces many challenges in the short-term. Empty spaces could give new opportunities to groups like nonprofit organizations or artists to come in and help revive downtown, she said.
“I am long-term always optimistic on San Francisco,” Chapple said. “Something else will come.”