Let me preface my remarks tonight with a small confession. I love San Francisco, I’ve been there many times, and I have always enjoyed every visit. For a poor dumb ol’ Texas boy, to admit that enjoy visiting San Francisco is probably some form of cultural betrayal, but I don’t care. There are a lot of things to enjoy in San Francisco.
About twenty years ago, I took my sons, What’s-His-Name and The-Other-One, to San Francisco on a vacation and we had a ball. On Alcatraz, my wide-eyed sons met a former prisoner and listened to his stories about life on ‘the rock.” There are only a few of those Alcatraz alumni left—the youngest is close to 90 years old.
I wish San Francisco had stayed that way it was then: I want to visit that place again. I want to walk through the Embarcadero Center and eat seafood on the wharf. I want to wander through China Town and order noodles off a menu I can’t read. Unfortunately, that trip may have to wait a while: the San Francisco we visited no longer exists.
Nowhere is that downward spiral more evident than in the tech sector that makes up the heart of San Francisco’s Silicon Valley. The latest information is dire indeed: 63% of the area’s tech firms say they have either downsized their presence in San Francisco or plan to do so in the coming year. To date, more than 72,000 tech employees have moved out since the start of the pandemic. While people are still moving to the area, for the first time in decades, 4% more people are moving out than are moving in, and that out vs in ratio for those employed in the tech sector is a staggering negative 35%.
The real estate market is beginning to reflect the exodus, too. The rent for a one-bedroom apartment didn’t go down during the pandemic—it went up 13%. The price of homes is still so high that you have to wonder if the people living there actually realize that they could sell their homes, move someplace else and buy a home three times as big and still have enough money left over to put in Olympic-sized pools in their backyards. (Seriously, folks, what’s keeping you there? You don’t need a passport to leave that state, you know.)
Currently, there are 17 million square feet of empty office space in Silicon Valley. That’s a number that has no meaning to most people, so let’s put it another way: As vast and cavernous as the Pentagon is—it would take a dozen of them to equal the empty office space currently waiting for tenants around the Bay City—and more businesses are moving out than are moving in.
This means there is more empty commercial space than during the worst of the 2008 recession, and the drop in rentals is the worst in more than thirty years…And the trend is accelerating.
The list of companies that have announced that they are downsizing their offices in Silicon Valley includes almost all of the tech companies in the S&P 500 list. Airbnb, Oracle, Yelp, Ancestry, Brex, Digital Realty, PayPal, Trulia, and Pinterest are just a few of the companies that are downsizing and half of these are leaving the area entirely. A survey of these company’s management shows that over half of those responding would advise against a new company setting up shop in California. A third of those responding suggested that in the future, new companies should have a distributed work force that works remotely.
If the current rate of business exodus continues, the city estimates that the property tax base will drop by 35% by the year 2028. And if the current rate of closure of retail stores within the city continues, the drop in sales tax revenue could be worse. (Even now, as the revenue from sales tax begins to decline, at least one clueless member of the city council is suggesting that the city should raise the tax rate to make up the deficit in revenue!)
So where are the companies going? Among the cities listed, Austin was the most popular, with Miami coming in a close second. If you look at the answers as to why companies are moving, there are common trends: Companies looking to relocate wanted a state with either low taxes or no income tax, they wanted a right-to-work state and they wanted a location with either a university or a high number of highly-educated people in the tech field.
All of the above was in motion before Bob Lee was murdered this week as he walked through downtown San Francisco. Lee created the popular payment program known as Cash App and was the chief technology officer for Block. Lee had already moved out of the Bay Area because of the high crime rate and was only back in the city to visit friends. He was brutally stabbed and as he lay bleeding in the street begged a passing motorist for assistance—a plea that was ignored.
Following Lee’s murder, a number of tech executives in the area have announced they are going to reconsider their firms’ remaining in Silicon Valley, and it was about this time that we started to read stories about the city being caught in a doom cycle.
The number of tech workers remaining in San Francisco is still huge and the total population of people working in the computer industry on the West Coast is by far larger than anywhere else in the United States. The downward trend is reversible and there is hope that San Francisco can still fix the myriad of problems that currently plague the city. San Francisco is a “survivor”.
It wouldn’t be the first time the city has recovered from adversity. The town was destroyed by fire in 1851 and again in 1906. And the list of earthquakes that have damaged the city would be very long. Each time, the city has bounced back. Hopefully, it can do so again.
San Francisco is a survivor
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