Office Vacancy Rate in San Francisco Just Hit a New High
socketsite.com
socketsite.com
With this in mind, it still shocks me how the building managers in SF I work with have just gotten worse. They're bitter and mean and have made things so much harder for us (rather than being kinder and doing everything they can to retain us).
My point is that it's not nearly as bad as it's going to be, and there's nothing that makes me think it'll get better.
I really hope they turn a lot of these buildings into housing; we could kill two birds with one stone.
for what its worth one of this epochs Rockefellers, Mike Bloomberg, gave it his best shot this year turning almost every article in his newspaper into a full-throated commandment to return to office spaces immediately, embrace your daily commute, and eschew the perils of pouring coffee from your kitchen only to watch the effort fall upon deaf ears. WeWork and slumlords turned most startups against renting office space entirely, while gas prices and covid basically outed the VPN as the executive bathroom nobody at the company got to use but the C levels until now.
But in about three years they will ditch the lease, as will many other companies in similar situations. This is just the beginning.
On the plus side, here in Cupertino there has been an eternal debate what to do with the empty land the old mall used to sit on. They wanted to build 3M square feet of office space, but now they probably won't do that, which is a big win for the community who wants it to be retail or housing and not offices.
This is the real point of opportunity. Rather than the well-meaning but economically unviable push to convert office buildings into housing, the most attainable goal right now is to prevent new offices from being built and build housing on that land instead.
Is it though? If you take away the offices, and offices close, why do people need to live there?
Where will they work?
And if it is 100% remote, why not live where the cost of living, and housing, is 1/2 the cost already?
There are many smaller cities, and cities without as many issues as SanFran too. So with remote, there is also the choice of "better managed city".
I wonder if it will empty, or become some apocalyptic landscape, with endless abandoned empty office buildings, and the homeless living in them, and everyone else just gone.
It seems, from the comments here, that SanFran is very poorly run. The robberies, the homeless, the filth on the street, and now, emptiness and presumably maybe budget problems soon.
For example, what if some of the older office buildings are just cut+run? Property management corp X goes bankrupt, or, just decides that it's not worth paying property tax any more.
Sure, the city can seize and sell off property for back tax reclamation, but what if no one even wants to buy? What if eventually 1/2 the office space is just owned by the city, decaying, no property tax, unmaintained?
It could become Detroit, but worse.
The mall is gone now, it's a literal hole in the ground while they fight multiple legal battles with the city about what to do with it.
Feels like a new era of some big changes in relation to city planning. Cities will have to build housing to account for the loss in tax base of commercial real estate.
The percentage numbers don’t quite tell the whole story, either. There are two million daily riders missing.
The level of traffic remains the same because the biggest incentive against driving is the traffic. Therefore, the traffic will always remain at the highest tolerable level, unless additional disincentives (such as congestion pricing) are introduced. This is commonly known as induced demand.
I can believe that. I think I've only taken the train in once. (Not because I was avoiding it but because it didn't align with my schedule.) And there were a fair number of empty seats at the point it would have probably have been standing room only pre-pandemic. But sample size of one and this was a number of months ago.
That said, my overall observation is that things are probably closer to back to normal than in some tech industry bubbles.
Think of all the trades(mechanics, construction, plumbing, builders, etc). Think of all retail workers. Think of manufacturing.
That's already well more than 1/2 the jobs out there, and there are more.
I would be surprised of more than 10% of people, are wfh.
A large office space would need walls and a lot of plumbing work to convert to apartments (and probably a lot more electricity to power multiple kitchens full of appliances).
I view this as an "outrunning the bear" situation. I.e. you don't need to run faster than the bear, just run faster than your poor friend.
The cost to convert an office tower into apartments is high I'm sure, but is it higher than building a similarly-sized apartment tower from scratch? A lot of money goes into the foundation works and soils engineering.
Anyway, you can convert some of them, but it's not an easy journey!
It probably will work.
A better world is possible, and it's actively sabotaged by entrenched interests.
I've been at Microsoft and now Amazon; they're both extremely remote friendly. Offices have been largely empty so they've not renewed most of the expiring leases.
Some functions still need to be performed in-person so they'll have some space but no longer the everyone comes to office to put on noise cancelling headphones to work individually mostly. And even that space is getting distributed across the country and not concentrated in SF/Seattle
Near 0 vacancies, rising rents[2] and a huge boom in construction.
It'll be a painful shakeup, but eventually the market will normalize to a price where renovating office space for labs and new hybrid work environments makes sense. Anecdotally, family and friends in structural and architectural fields in the bay are busier than ever with these types of retrofits.
1 - https://kidder.com/market-reports/san-francisco-life-science... 2 - https://www.bizjournals.com/sanfrancisco/news/2021/11/12/bay...
> And once again, while tempting to see or promote an opportunity to convert all the vacant office space into housing in a response to San Francisco’s housing woes, the conversion of existing office space to residential use currently makes no economic sense for the vast majority of downtown San Francisco buildings, due to the relative value of each use and the cost of conversion.
Residential conversion always comes up in these discussions, but the truth is it's a much more limited opportunity than it appears at first glance.
So things that would've been conventional wisdom for 100 years, that were true for each generation, have suddenly stopped being true.
When people say 'no residential' I would say: what's your alternative?
Office space - obviously failing, why we're having this discussion.
Restaurant/coffeeshop/cafe space - nope, too much of it. Not viable.
The only option left is residential.
To be clear, if someone can come up with a better option in 2022 than residential, I'm happy to say I was wrong. But what it is? I just covered the possibilities. There's nothing else.
There's only one thing that can happen, at this point: landlords can keep their spaces unrented. Or they can convert them to residential. There is no third possibility. That's all there is.
My hunch is that you're right, but that it will follow a different pattern from what is popularly imagined. I think we tend to have this lofty vision of office towers being converted into no-frills, affordable homes that will offer working-class families a place to live close to where they work, but this vision doesn't really match with economic reality.
Much more likely in my view, given present residential construction macro-trends and the actual costs of residential conversion, is this: A slow process of converting the buildings that are currently losing the most money into luxury housing. The conversions will be massively expensive, in some cases more than the cost of new construction, but they will happen.
The upside of this, while much more limited in scope than the popular conception of residential conversion, is that it will increase the housing supply, and stands a chance to ultimately improve affordability as those who can afford it upgrade to higher-end homes.
Presumably, the relative value will change at some point if demand for office space falls off a cliff.
I also suspect there are public policy factors that could be brought to bear. Vacancy taxes (perhaps even scaling with vacancy volume) are underused. Put them into place, use the revenue to fund pilot conversion projects, prizes for innovation on that front, and eventually perhaps subsidies.
As always, incentives matter. But often overlooked is that incentives are malleable.
But it's really hard to say how this plays out. Time will tell.
The office building we have at work has 6 toilets per floor, and each floor is probably 50,000 sqft. If you replaced that with residential, you'd end up with, like, 70 toilets per floor, plus 50 showers, 70+ sinks, ... I mean holy crap. There's only three elevators. That'd probably work? Maybe?
Plenty of parking, though.
Of course, it's not the modern centrally located office buildings that are vacant but the older ones at more remote locations. Converting those is going to be more expensive, and it may be more cost-effective to simply demolish them and build new residential.
Many of the older office spaces in SF might be impossible to convert under current standards; the city may have to exempt conversions from those rules or something. They might do if if the moneyed interests lobby for it.
I suspect this kind of thing wouldn’t happen unless we saw a real drop in the value of office space in SF, and if it did, it wouldn’t be like NYC.
Recommended.
If you have a huge house with a garden and can work from home I think you just won the lottery.
All the good urban planning in European cities I think comes at the expense of comfort of how people live.
If you live in a 85sqm in a city you are lucky but probably pay too much for rent anyway and have to suffer noisy neighbors and construction.
I think it's just a question of which comforts you prioritize. European cities are maximize healthy transportation and access to services/urban leisure. Suburbs maximize personal space and privacy, and in some cases outdoor access. To describe one as uncomfortable is to project your own personal preferences.
And then if you count all the companies doing a return to office motion just to justify the real estate, it could go even higher...
I don't think we will know the true impact of the WFH era for another few years.
It's not impossible, it's just expensive.
Not everyone will go along with this, but if they could get 80% of the people back it'll probably be enough to prevent commercial real estate from collapsing.