17.1 Salesforce Towers worth of empty office space spread across SF
socketsite.com
socketsite.com
Cities exist as job markets. And the primary force that keeps urban areas safe and friendly is the shoeleather of middle class workers coming in and out of work each day.
The vacuum left has been filled with homelessness and poverty. These people were always here, but there was enough critical mass that they were at the margins. Now they are at all of the bus stops and train platforms.
Cities often had their priorities backwards and became very dependent on unsustainably high property values. Even if you started rezoning office buildings into housing, SF would be taking a double hit - there is less reason to live in SF and more housing would bring down values everywhere. Forgetting that these business districts are pretty undesirable places to live anyway.
So we are looking at a potential "death spiral" as cities lose their appeal, and lose the funding to solve the problems. Until they button up and find a new stable equilibrium.
SF is especially weird because it had/has somewhat of a vibrant tourism scene, and was always pretty hostile to its own business community. And now you have a hollowed-out downtown that is now not nearly as desirable for business and not particularly tourist friendly either.
Let's thought experiment this. In one world, you have a lot more housing supply, which would help stabilize the drain from people being priced out, and quite possibly swing SF back towards being a desirable place to live once it's no longer unattainably expensive (and spur jobs too because you'd need businesses to serve the people who'd otherwise leave or never come). Prices dip then plateau then gradually recover if you avert a "death spiral."
In one world, you do nothing, you shrug and say "homelessness isn't my problem, and I don't want any new housing or anything." Let's say you get that death spiral. What's happened to your property value then? NIMBYism ain't saving you there if far fewer people want to live there.
Other cities in the US, especially those which are less geographically constrained than SF, and a bit more practical than just "we're gonna say we care about homelessness instead of demonizing people, but actually we're not gonna do anything", have ongoing development and feel a lot healthier. There are likely still rental market dragons lurking (though many of these other cities are also less WFH-oriented/friendly) but they're in far better shape so far.
The issue with SF that the OP here is trying to extrapolate to US cities as a whole is rather more like "priced out of literally every part of town other than a tent on the street" while at the same time having huge amounts of empty space in buildings, which is a very precarious position and one that's far less common in large US cities/metro areas. (There's also a unique aspect about SF being quite small, city-wise, by US standards and much of its surrounding suburbs also being obscenely expensive across the board; SF itself could suffer big hits to population and desirability and that may or may not have much impact on the rest of the Bay Area).
On the other side of the scale you have cities like Detroit. There is no shortage of cheap housing and culture. But without enough career prospects, the city struggles for opposite reasons. If anything, homelessness is actually worse because the city services are stretched so thin across such a large geographic area with so much poverty.
Most cities in the US are somewhere in the middle. SF is uniquely bad in how terribly they let basic livability get for even their highest income earners.
What would recommend as a starting point for Bertaud?
I think Rust Belt/NE US cities have a huge weather disadvantage that makes it hard for a place like Detroit to attract people back once they lose them; I don't think SF has that same problem. I see it as the difference between "affordable because of low demand" (where they're also competing with the literal middle of nowhere) and "affordable because of adequate supply". Once you jump-start the demand (with the jobs and all - another thing the Sun Belt cities and states did very deliberately) the cities in the latter situation that keep building so they stay "affordable-ish" will never be as affordable as the ones that simply aren't desirable, but they can also avoid being so fragile as modern SF. You gotta jump-start it first, but then the presence of continual new, affordable-ish housing becomes a factor that draws more business due to lower COL (like any of a number of relocation announcements from CA to TX).
(I would, though probably-controversially, claim that the biggest problem of SF in the last 20 years was not solely "didn't build enough housing" but "allowed way too much office space for the amount of residential they wanted" - I think they could've done slower residential demand growth in a more sustainable way if they'd better balanced what they wanted early on. The lack of balance meant the proceeds of the industry they did have couldn't be re-invested into other jobs and industries in the city, it was all just going to stupid high rent and property prices.)
https://www.fincen.gov/resources/advisories/fincen-advisory-...
Criminals can use all-cash purchases to make payments in full for properties and evade scrutiny—on themselves and the origin of their wealth—that is regularly performed by financial institutions in transactions involving mortgages.9 All-cash transactions account for nearly one in four residential real estate purchases, totaling hundreds of billions of dollars nationwide, and are particularly exposed to abuse.10 All-cash transactions account for an even larger stake in some U.S. markets. For instance, nearly 50 percent of residential real estate sales in Miami-Dade County were all-cash transactions in 2015 and 2016.11 Many all-cash transactions are routine and legitimate, however, they also present significant opportunities for exploitation by illicit actors.It turns out the French had it more right when they levied taxes based upon Street front length instead of area.
The length of the road, sidewalk, street lighting, water pipe, electrical lines, telephone lines, etc. are all increased with wide properties. Perversely, the wealthier homeowner is subsidized by the poorer apartment dweller.
That's changing. Cities are beginning to exist as playgrounds for the privileged.
It would be great as a base while traveling. I could visit between changing flights, and swap some of my gear. Occasionally I would sleep there.
But it just isn’t a thing. Surely the margins would be decent? The demand must be too low.
It's an new type of carrot, but I doubt it is going to work on very many. Open floorplans were an abomination but the gap between them and a private office is much smaller than the gap between a private office and a home office. For those who don't have a good workspace at home or just prefer to be in the office, private offices might be a nice change. There probably will be a small percentage of extreme extraverts who miss the bullpen type workspace.
While all that may be necessary, it won't happen until it's the only thing that can happen.
> About 700 office leases are likely to expire in 2023 and another 600 are up in 2024 in the Financial District alone, said Avison Young’s insights and innovation head Dina Gouveia, for a total of about 10 million square feet of office space. In 2025 and 2026, another 10 million-plus square feet are likely to expire.
https://therealdeal.com/sanfrancisco/2022/10/17/downtown-sf-...
Commercial financing has onerous terms which should be stricken by the government/courts.
In a situation like this where there's a massive downturn in office rental value and not much expectation it'll lift any time soon, it seems in both parties benefit by allowing lower rents. Locking commercial tenants in 5-10 year leases at current market rates will probably mean the building owner defaults on their debt, but that seems inevitable.
Also, if the owners start going bad on their debts there is a potentially cascading financial problem for the city of San Francisco
You could sell ice cream for 5 cents on a hot summer day and people might not buy it. Try it and find out; there has been speculation in the past that lowering prices raises sales.
In a way, this is worse with real estate. With ice cream you can always make up losses with volume (to a certain extent). With real estate you have a fixed supply.
Moreover, if you drop the price to get a new tenant, you implicitly drop the price for all existing units as well.
I have never been sure if HN is invested in commenting on SF real estate because they disproportionately live here, or because they live elsewhere and get a warped news feed that has an interest in portraying SF in a negative light.
Why not both?
Know personally of startups in SF which have been discouraged from cutting their lease and paying a penalty so that the landlord can keep occupancy #s high. Of course, there are sweeteners involved to keep them "occupying" the space when in reality they moved out >6 months ago. They'll be in the space for years to come...
22.9% of SF office space was available. Houston 22.2%, Dallas 20.9%, Chicago 19.6% and DC 19.2%.
Yeah, yeah, office buildings are often built completely different from housing and need to be vastly retooled, but it is possible, and Boston is attempting it. When it comes to SF it feels like the regulatory issues are more difficult.
Compartmentalization will be a lot easier though since most offices are built to be fairly modular/open plan.
Historically it's been a huge issue in other neighborhoods, where current homeowners are loath to approve more housing since it would drag down their property values. But I have to imagine that SF's downtown has drastically fewer homeowners per-square-mile (at least compared to, say, Sunset or Pacific Heights or the Marina).
Yes SF's approval process is a hellscape of regulatory hurdles, but given the lack of homeowners in the area, I wonder if the approval process would go at least a smidge more smoothly?
Actually, who am I kidding- some other interest group would probably take their place.
This is it unfortunately.
After observing the SF NIMBY mentality for many, many years, you start to see the matrix. It has nothing to do with gentrification, inclusion, environmentalism, or any of the other purported values. It's about one thing: stasis. Keeping SF the same at all costs, and making sure no new people come here.
San Franciscans favorite subject right now is talking about how downtown commercial space could be converted to housing, but make no mistake, the second anyone actually tried to do that, the backslash would be powerful and instantaneous. (And it's already so impossible to do between zoning and regulation that it doesn't even need backlash to already be infeasible.)
No. You're just monstering your enemies so you don't have to argue with them. Poisoning the well.
Applies to Seattle as well
But I think the problems are that this would represent a major depreciation of the value of the real estate - both for the owners and the city. And the zoning issues would be tough. These are currently not good areas for housing without a lot of work.