Take It or Leave It
As tech workers reconsider work-life balance and square footage, the housing market has taken a hit.
The announcement surprised few. After weeks on end of thick fog blanketing San Francisco, Google announced in late July an extension of the company’s optional remote-work policy for its employees until summer 2021. Over the previous four months, as the world struggled to contain the spread of the novel coronavirus that had already killed over 650,000 worldwide, companies across the globe had permitted their staff to work remotely, while service-based industries and others had laid off millions.
Within days of the announcement, nearly every other major tech company followed suit.
The Bay Area, with its overwhelming reliance on the tech economy, was unquestionably going to be impacted by this unprecedented alteration of how business and work is conducted. Salesforce, Airbnb, Facebook, and Uber all declared workers had the option to continue remote work until next summer, while other firms extended just until the end of this year. More profoundly though, several tech giants announced that after the pandemic was over, most of their employees would have the option of permanently working from home—including Twitter, Square, and Slack—all based in San Francisco.
Nine years ago, when Twitter set up shop in San Francisco, lured by the city through tax breaks, there was optimism that establishing its headquarters in the historic Western Furniture Exchange and Merchandise Mart on 10th and Market would lead to the transformation of Mid-Market and neighboring Civic Center. Unfortunately, Twitter’s presence did not serve as a catalyst for change.
The economic spillover to the surrounding communities never arrived. Trendy restaurants sprung up but were quickly shuttered—hamstrung by the company-sponsored high-end cafeterias. Down the street, a daily black market of stolen merchandise persisted for years (until it was shut down by the mayor), while open-air drug dealing continued to plague nearby streets. But the saddest and most troubling plight of this neighborhood is the chronic hardcore homeless that live on the sidewalks. While the city spends hundreds of millions of dollars annually to address the homeless situation, the situation has been compounded by COVID-19.
The exodus out of San Francisco began in earnest the moment the shelter-in-place order was declared. As reported in my last column, given the option to stay here and work remotely or exit, large numbers of tenants began uprooting their lives, heading back home, to cheaper locales or recreational havens. No longer satisfied with life here, with its high housing costs and COVID restrictions, this generation—once given the green light from their employers—opted to move away. Joined by homeowners who have rediscovered the apparent joys of suburbia, there is concern that life in San Francisco has become and will remain, dramatically altered.
Exacerbating this new reality is the employment situation locally. Following massive layoffs over the first three months of the pandemic, San Francisco has steadily added almost 57,000 jobs as of July, though the gains were hampered by the resurgence of the virus earlier in the summer. However, of the nearly 189,000 jobs lost, close to 132,000 have yet to be recovered in the San Francisco Metro Area, which includes San Mateo County.
The tech sector here has not been spared by job losses either. With its massive concentration of technology companies, the Bay Area has been hit the hardest with tech-related layoffs. According to Layoffs.fyi, a site that tracks tech-startup layoffs since the onset of the coronavirus, leading tech firms across the region have issued over 28,000 layoff notices to their employees. In comparison, firms in New York and Boston issued just over 9,000 collectively. (Notably, asking rents are essential unchanged in these cities.) Lead by tech giants Uber and Airbnb, the list includes Stitch Fix, Salesforce, Yelp, Lyft, LinkedIn, and Juul.
The impact on rental housing has been severe.
As of September, asking rents in San Francisco had already dropped 15%, according to the experts in the industry. In neighborhoods like South of Market, rents have fallen 25%, and if the building is near a homeless encampment, the drop is even worse. Officially, asking rents are only down 8% in San Francisco and San Jose, according to CoStar, an analytics and marketing firm for commercial real estate. This data however tends to focus on larger Class A/B properties and leaves out the buildings owned by smaller operators that comprise the vast majority of properties in San Francisco.
“This is the worst anyone has ever seen, and I’ve been at this now for 17 years,” warns David Chesnosky, a leasing agent with RentingSF. “People are still continuing to move out of the city and no new people are moving in,” cautions Chesnosky. He reports those who are in the market are just people who already live here, and they are savvy. “Tenants want outdoor space, a yard, a roof, a deck, a patio—they want space.” Ideal rentals would include amenities like a small office, or more importantly, a washer and dryer.
“Rents are down 15% on average,” says Paul Gaetani, one of the industry regulars I call on to report what’s happening. With nearly 4,000 units under management, his company, Gaetani Real Estate, reported nearly 90 current listings early last month—which is very high. “They are renting—assuming our clients are willing to negotiate on price.”
He points out most renters are asking for concessions at the get go. “First they apply, and then at the lease signing, the negotiations start on price,” tells Gaetani, who recommends to his clients that they work with tenants. As they say, a bird in the hand is worth two in the bush. “At this point, get it filled at all cost—I don’t see this letting up anytime soon, especially as we enter the holiday season.” warns Gaetani. “By the way, everything is pet friendly these days.” Other concessions include one month’s rent credit, low deposits, and move-in dates scheduled one month out.
“Landlords have got to listen to the market these days—no aiming high,” warns Jackie Tom, whose firm Rentals in SF specializes in leasing. She encourages owners to be realistic with the pricing. “We’re always up front with what a property is worth, clearly communicating to our clients where the market is.”
The key with prospective tenants according to Jackie is to keep them happy. A couple considering leasing a unit in a building she owns was concerned about the limited closet space. Determined not to let potential renters slip away, Jackie sprang into action and proposed several improvements to the apartment, including new closet systems, a kitchen island, sound-reduction curtains and pantry shelving (tenants picked it all out at Ikea, and she paid for it). The cost: $1,100. She even purchased a gas BBQ grill for the rear garden. “The gesture of giving and them getting was enough.” Jackie confirmed asking rents had taken a serious dive. “We’re at 10-year-ago pricing,” remarked Tom, who mentioned she had seen a two-bedroom unit in Presidio Heights renting for $3,200.
With the statewide vote on Proposition 21 scheduled next month, some owners are reluctantly leaving units off the market in hopes of avoiding locking in artificially low rents. Of the proposition’s many detrimental components to owners, none is more drastic than the section that removes vacancy control restrictions from state law. “If we lose Prop. 21, there will be real change—it would devastating,” said an owner who requested anonymity. For his top-floor units with views, he’s opted to not to lease them out until the market improves.
A word of caution about news coverage for today’s rental market: don’t rely on it to make crucial decisions. Often media sources are tech-based reporting agencies with funny names—firms that have come and gone over the years. Trust the professionals in this industry. They have been in the trenches for years and will have up-to-date numbers that you can rely on to help fill vacancies and navigate in this unprecedented time. Local management companies, experienced leasing agents, and speakers at SFAA’s meetings—all will have insight into the market that cannot be gleaned from the pages of a newspaper or from the latest posting on a blog. Additionally, with the political and legislative landscape changing almost at a rapid clip, if there’s a legal problem, turn to a local landlord-tenant attorney for help.
Everyone is examining their work-life balance. Business may forever be altered by the realities brought about in the fight against COVID-19. Daniel Wilson, vice president at the Federal Reserve bank of San Francisco, reported last month that a national economic recovery appears to be underway, but cautioned that the road to a full recovery will take several years. Already, companies are rethinking compensation protocols for employees working remotely. And this “balance” everyone is yearning for may be quickly dissipate, as many begin to remember why they left home in the first place.
Matthew C. Sheridan is an apartment building specialist with Newmark Knight Frank and is the emeritus editor and publisher of this magazine. He can be reached at 415-273-2179.