San Francisco: office vacancy rates track crime hotspots

San Francisco remains one of the world’s most beautiful cities. Yet solutions for its deterioration are strangely lacking. Homeless encampments have spread across the central district and drug overdoses are rising. Close to one-third of the city’s office space now sits empty. High rates, safety concerns and remote working suggest property sales at reduced prices will soon be the norm. 

In the second quarter of the year, average vacancy rates hit 31.6 per cent in San Francisco, up from 10 per cent in late 2020, according to data from CBRE. Unoccupied buildings cluster in areas where most crimes are reported, particularly those close to the notorious Tenderloin neighbourhood.

Earlier this month, the federal government reportedly told staff based in a nearby office block to work from home for safety reasons. California governor Gavin Newsom has deployed the state’s national guard to target sales of fentanyl, a synthetic opioid held responsible for an increase in thefts and drug-related deaths. 

Property prices may also fall furthest in these areas. Research by Trepp, which monitors the commercial mortgage market, shows that non-performing loans cluster here. It points to the Westfield shopping mall on Market Street, where the debt service coverage ratio dropped from 2.2 times to 1.05 times between 2019 and 2022.

Violent crimes across the Bay Area remain low compared with cities such as New York. Property crime is high, though not yet back to pre-pandemic levels. Perception of increased risk may be greater than the reality. 

Commercial construction boomed in San Francisco in 2018, with 3,000 sq ft completed amid rising tech stocks. The Salesforce Tower became the city’s tallest skyscraper, part of downtown redevelopment. 

The pandemic put a stop to this. Employees took remote work as an opportunity to escape the city’s high rents. Even by 2060, the city’s population is not expected to return to 2020 levels, according to a forecast from the Department of Finance.

San Francisco remains a destination for world-changing companies. Generative AI start-up OpenAI is based in the Mission while Anthropic’s headquarters is on Market Street. But the sector is not a big enough employer yet to absorb spaces left by every other business.

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