San Francisco is the goose that laid golden eggs. During the gold rush of 1848 to 1849, San Francisco became one of the most prominent cities in the West.
Soon, the abundance of land and property invited a mass migration to the city, becoming one of the most sought-after regions for business. Subsequently, the city was deemed as the financial and administrative capital of the West.
After the second industrial revolution and technological advancement, the city emerged as the locus of significant tech companies, and the recovery after the dot-com bubble only gave more hope for tech-preneurs to entrust the city for their venture.
Silicon Valley, located in the San Francisco Bay Area of California, USA, flourished even more with the startup culture, emerging as the most influential hub for job-seekers.
Meanwhile, the other portion of the city was setting up a robust financial foundation for commercial activities in the city, including business services such as personnel supply, building maintenance, security, computers and data processing, advertising, retail trade, the tourist and convention industry, and professional services.
However, the recent New Yorker article infers that San Francisco has been on a decline since its peak. The author puts forth a hypothesis that several unattended factors have compiled within the three years since the pandemic, churning a vicious cycle and leading the city downhill.
The New Yorker published an article on October 16, 2023, titled “What Happened to San Francisco Really?” where the thesis discusses the “urban doom loop” concerning the declining commercial real estate value as most employees work from home. The article further highlights the rampant thefts and vandalism in the city, along with the surging drug overdose cases. In conclusion, the report infers that significant reforms are needed in San Francisco to save the Downtown area, setting aside the polarizing internal politics of moderates vs progressives.
What Happened to San Francisco Really?
San Francisco is faced with a tripod challenge that includes real estate, rampant crimes, and exodus. These challenges surfaced significantly after the pandemic-led lockdown. Economists believe this impending doom is looping itself until the city’s revenue becomes insufficient for survival.
Here are the three critical aspects of this theory–
Doom Loop and Decrease In Commercial Real Estate
Here’s a simple dissection of an urban doom loop–
- The lockdown allowed the majority of offices to work from home.
- Even after the lockdown was lifted, most offices allowed the employees to continue working from home, considering the increased work efficiency.
- This resulted in most offices downsizing and terminating their leasing contracts.
- To put it into perspective: Up until a few years back, property in San Fransisco was as good as buying a nation. The city’s GDP was dominated by 75% office work downtown, generating 95% of the city’s business tax revenue in 2021.
- Cut to the present year, the office vacancy rate has reached a peak of 29.4% in the second quarter of 2023. Compared to the vacancy rate of 3.7% in 2019, the eight-fold increase will drastically affect commercial real estate.
- As a result, the ratio of available space to the leased/subleased space has seen a sudden spike, raising concerns for the investors and the landowners.
- The article co-relates the lack of revenue and tax generation from the declining commercial real estate to lower contribution to San Francisco’s GDP. This will further result in an imbalance in the purchasing power of the common man. The lower commercial real estate value has also led several retail businesses and companies to leave the city. This will lead to an “urban doom loop,” slowly disintegrating the economy.
Homeless, Drug Problems, and Crimes
Fentanyl addiction and the subsequent increase in drug overdose cases have been a critical concern in San Francisco’s health care sector.
Drug-related deaths surged by 41% in the first three months of 2021 – with an average of one person dying of an accidental overdose every 10 hours. The drug-ravaged Tenderloin district is worst affected.
For those unversed, Fentanyl is considered the most fatal drug, which could lead to an overdose even if a speck of the grain comes into human contact.
Meanwhile, the homeless epidemic has marred the downtown area, including a vast majority of drug addicts.
And finally, the surging crime rate, including theft and vandalism in the area, has discouraged businesses from buying commercial property.
Mass Migration of People Out Of The City
Several reports suggest that, in the past couple of years, people have been preferring to move out of the city for better job opportunities.
The other reason could be the deteriorating climatic conditions, as the wildfires led to smoky haze in the San Fransisco Bay area.
A lack of proper law enforcement and an underfunded police department amidst the rising crimes could lead to no confidence among the city residents.
All these factors led to a plummeting demography in the city.
An AverageBeing Take
San Fransisco Mayor London Breed maintains an optimistic stance amidst the criticisms. She proposed a plan that the vacant commercial properties can be converted into residential areas, presenting a lucrative option for home buyers since the property rates are declining.
Our take is that a commercial estate setback doesn’t define the city or the work culture. Studies show that working from home exhibits more productivity, considering that the employees spend 10 minutes less a day being unproductive, work one more day a week, and are 47% more productive.
Instead of worrying about short-term solutions for the owners and investors, San Fransisco’s current real estate market shows an optimistic trend if the downtown area is transformed for a long-term investment.
Moreover, a legion of AI Tech companies are gearing up to establish their base in the city. Even if some major companies left the city, a new way of tech resurgence awaits the city. This will lead to more jobs and greater revenue in the long run, thus reviving the census.
If the city focuses on law reforms and addresses the drug issues in the next five years, then there is no stopping its growth.
What are your thoughts on this analysis? What do you reckon from the New Yorker article? Do you think the commercial estate decline will lead to the city’s downfall?
What would be your solution for the drug and homeless issues? Let us know in the comments section below.