[HN Gopher] Office vacancies in San Francisco jump to a record 33%
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Office vacancies in San Francisco jump to a record 33%
Author : GalenErso
Score : 80 points
Date : 2023-04-14 20:25 UTC (2 hours ago)
(HTM) web link (therealdeal.com)
(TXT) w3m dump (therealdeal.com)
| danny_codes wrote:
| Perhaps we can repurpose some of this real estate for
| housing/retail use. Perhaps having a jobs-to-housing ratio of 3.5
| is not sustainable, who would have guessed.
|
| The fact is that SF has added way more jobs then housing for
| decades.
|
| IMO this is a great opportunity for SF to re-balance their
| jobs/housing situation. I have no doubt that SF and surrounding
| cities will act promptly to turn this into an overall win! \s
| carrja99 wrote:
| You know what's nice? Realizing on Friday you cannot find your
| keys because you haven't driven all week
| throwbadubadu wrote:
| Keys... hah easy, we have actually been searching our car in
| the 15-30 minute range.. trying to remember when and why we
| last drove it, and where we parked - and as I write that right
| now I cannot remember again where it is right now :/
| elforce002 wrote:
| That's life right there. Enjoy it.
| jbigelow76 wrote:
| Won't somebody think of the shareholders!?
| rufus_foreman wrote:
| Not for me. I work from home but I will typically go for a
| drive after work just to get out of the house and because I
| love to drive.
|
| I mean I don't love to drive in west coast cities that are
| congested, but in most of the country you can drive at highway
| speeds on the highway, except for rush hour, which in those
| places lasts one hour and during which you can drive at highway
| speeds minus 10 mph.
| jeffbee wrote:
| Austin has similar all-time-high office vacancy rates but oddly
| there is not the constant drumbeat of doom regarding that city.
| paulddraper wrote:
| I think Austin has 19% vacancy?
|
| https://therealdeal.com/texas/2023/04/10/austins-office-mark...
|
| In any case, Austin'w population is growing 2% annually. SF
| growth rate is essentially 0.
|
| Excess capacity is a problem if it stays excess capacity.
| jeffbee wrote:
| That's comparing various sources with undisclosed methods. I
| suggest apples-to-apples comparisons of the Cushman &
| Wakefield reports for the two cities. In their reports using
| comparable methodology SF is 24.8% and Austin is 23.1%.
| calr wrote:
| I find commuting from the 24th and Mission to downtown via the
| BART very pleasant these days. Before COVID I would fight my way
| and barely squeeze in. Now I get a seat just about every time. I
| get off at Montgomery, so I am able to skip over the sketchier
| stops on Market (Civic center and Powell to some extent). There
| are still plenty of great cafes, coffeeshops, and bars open
| within walking distance of my office. Overall no complaints; I
| enjoy going into the office much more than before COVID.
| htrp wrote:
| You will continue to enjoy your commute until everyone else is
| back in the office. Once that happens, you will hate it just as
| much.
| atleastoptimal wrote:
| I'd wager at this point in the history of the West, the full
| "return to the office" back to pre-pandemic levels will never
| happen. We will look back at 2019 as the point at which we
| hit "peak toil", before the WFH movements and AI automation
| changed the structure of productivity forever.
| Aaronstotle wrote:
| I'm in the same boat, I commute from East Bay and BART now has
| plenty of space in the morning and evening.
|
| Not empty, but not as full as it used to be, I also enjoy
| commuting because its the perfect place to read.
| atleastoptimal wrote:
| That's the tragic thing about public services. They're much
| better when providing the same service at a volume far below
| profitability.
| SeanAnderson wrote:
| Unfortunately BART isn't financially viable with the current
| numbers, right? https://www.bart.gov/about/financials/crisis
| shuckles wrote:
| Transportation infrastructure isn't meant to be financially
| viable. Interstates aren't profit centers.
| ipnon wrote:
| Many subway systems are profitable, like the Tokyo JR East.
| If there is a will there is a way. Americans simply prefer
| sprawl and cars when it comes down to it.
| SeanAnderson wrote:
| I agree, but the funding still has to come from somewhere.
| SF has an 800M budget shortfall and is looking at slashing
| services ~20% https://sfstandard.com/politics/city-
| hall/san-franciscos-def...
|
| The BART website clearly states that they are able to
| provide current operations due to COVID funding which runs
| out in 2025. They plan to stop offering weekend routes,
| stop running after 9PM, reduce train frequency to every 60
| minutes, etc.
| jeffbee wrote:
| That's not what BART's report says, at all. That is a
| _worst case_ analysis. The Metropolitan Transportation
| Commission required all agencies to undertake an unusual
| analysis using scenarios provided by MTC. The report
| concludes that BART cannot cut its way to solvency in the
| given scenarios. The report does not reflect BART 's
| actual projections or plans.
| SeanAnderson wrote:
| Okay, sorry if I am fearmongering. It's not my intent.
| What do you feel will happen?
|
| From my perspective, there's a website that has the word
| crisis in the URL, a chart that shows a ~40% loss in
| revenue due, and the two-year SF budget shortfall is
| trending up - recently revised from $720M to $780M. I
| find it challenging to take away an alternative
| perspective when none is offered up on the website beyond
| "be a transit champion."
| [deleted]
| gumby wrote:
| From the article rents aren't responding properly. I saw this
| also in the 2008 crisis: landlords would prefer to have a
| building empty (not just class A office, but retail space too)
| then rent for a lower amount.
|
| On the other hand, in SV we got a year's free rent, so we took
| enough space to fit our guess for what we'll need in 18 months. I
| imagine that will be reported as what rent we'll pay when we
| finally do start paying, without averaging in that year of no
| revenue.
| swalling wrote:
| This is also the lingering effects of zoning and San Francisco
| business tax policy.
|
| De-regulating downtown zoning for conversion and tax breaks
| (https://sfstandard.com/business/mayor-breed-introduces-
| tax-b...) are both likely to be tried, though what impact it
| will have seems limited in the near term.
|
| If it does rebound, it might not be until the next generation
| of startups reaches mid to late stage on the other side of the
| current lending crunch, presuming they don't exclusively work
| remote or choose NYC as their primary hub.
| epistasis wrote:
| Real estate has very very sticky prices when it comes to down
| markets, because those who hold real estate have every reason
| to believe that their speculation on ever-increasing prices
| will be well rewarded.
|
| San Francisco in particular has done everything it can to
| reward speculation and higher prices by opposing development,
| thereby greatly enriching those in real estate.
|
| Weathering one to two years of missed rent might be very well
| worth what they can get on the other side. In anti-development
| areas like San Francisco, the profits from real estate
| appreciation are one of the most important aspects of the
| financial side of the property, and rents often take a back
| seat.
| JumpCrisscross wrote:
| > _those who hold real estate have every reason to believe
| that their speculation on ever-increasing prices will be well
| rewarded_
|
| They're also leveraged. Renting at a lower rate threatens
| insolvency.
| epistasis wrote:
| Yes, though that's mostly with newer builds that are just
| starting to rent out. After a few years, rent appreciation
| in SF makes the initial mortgage requirements for renting
| moot, for the most part.
| JumpCrisscross wrote:
| > _rent appreciation in SF makes the initial mortgage
| requirements for renting moot_
|
| Assuming they don't refinance. Which a lot of them did
| when rates were low.
| labcomputer wrote:
| > landlords would prefer to have a building empty (not just
| class A office, but retail space too) then rent for a lower
| amount.
|
| Interestingly: I have heard that, for loans on commercial real
| estate, having vacant space with a high rent is better for the
| landlord than having a paying tenant and lower rent.
| Specifically, that banks:
|
| 1. Often allow the landlord to defer a fraction of the mortgage
| payment (proportional to vacant space) to the end of the loan
|
| 2. Often require an additional payment (to reduce the LTV) if
| the average rent of non-vacant units falls below the level when
| the loan was originated.
|
| So, landlords keep the space vacant because a) they can; and b)
| reducing rent means they have to pay the bank extra money they
| may not have.
| singleshot_ wrote:
| I think (and am maybe imagining?) that there is some kind of
| tax deduction for empty warehouse space and that technically
| a floor in an office building with absolutely no employees
| there qualifies as a warehouse. Not my area of expertise
| though.
|
| But nevertheless I've heard there are some cost optimizations
| to be had when the office is fully empty too.
| baggy_trough wrote:
| Rents down a percent. Don't think that's going to get 'er done.
| hnav wrote:
| As I understand there are debt-to-income ratios on commercial
| loans and those are calculated on the rent, so leasing to
| someone at a lower rent than you used to can bankrupt you since
| your lender will require you to come up with the cash to bring
| your ratio back into compliance. Basically like any other
| optimized system, real estate is not tolerant of transient
| conditions and it's not clear what's going to happen to
| commercial real estate. At least for CA housing, the state will
| prop it up through the junior loan program.
| rightbyte wrote:
| One of my friends is in real estate is complaining about
| this. His employer wont let him rent out their vacancies to
| market price since that would lower the nominal value of the
| estate.
|
| They rather have 0$ than what the market can bear as long as
| they wont have to lower rents.
| im3w1l wrote:
| This must have huge ramifications for the real estate sector,
| right? Can they service their loans with such vacancy rates?
| HPsquared wrote:
| About that banking crisis...
| aorloff wrote:
| Its going to have major effects when balloon payments
| (refinancing) are required
| mactavish88 wrote:
| How hard would it be to transform all this commercial real estate
| into residential real estate?
| brewdad wrote:
| For modern buildings, it's probably cheaper to tear it down and
| rebuild. For buildings built before WWII, it sometimes pencils
| out.
| ghaff wrote:
| There was a recent discussion on HN about this https://www.ny
| times.com/interactive/2023/03/11/upshot/office... , but yes.
| Basically older buildings can work (though the conversions
| are still expensive and tend to assume luxury apartments) but
| it's a lot harder with newer skyscrapers.
| Someone1234 wrote:
| - Too few homes/high costs: WFH improves it (both allowing people
| to live elsewhere AND improving supply).
|
| - ICE vehicles are contributing to poor air quality/climate
| change: WFH improves it (less commuting, lower traffic, etc)
|
| - Rural areas are losing population, suffering from poverty: WFH
| improves it (relatively affluent families can move there)
|
| - Suburban areas have poor walkability/local shopping/facilities:
| WFH improves it since people will spend more time there.
|
| The people who seem to be fighting this are corporations that
| hold commercial real-estate (and the media companies they run).
| Really just goes to show that most of their statements about the
| environment are just nonsense (looking at Apple in particular).
| SpaceManNabs wrote:
| > this are corporations that hold commercial real-estate
|
| While the executives enjoy all the benefits of being remote :)
| bluefirebrand wrote:
| You wouldn't want them to have to actually be accountable for
| the things they say, would you?
| kevin_thibedeau wrote:
| > Suburban areas have poor walkability
|
| Postwar suburbs have poor walkability. Neighborhoods laid out
| before the car infatuation set in are still decent places to
| live.
| brewdad wrote:
| In most cases, those are close-in neighborhoods that few
| would consider suburbs. Inner ring suburbs might qualify but
| those usually mean compromising on home size or school
| quality.
| rufus_foreman wrote:
| Streetcar suburbs were close-in neighborhoods that were
| built on streetcar lines (and horsecar lines before that)
| and were typically a mix of single family, 2 family, and 4
| family residences with some commercial properties at
| intersections (corner stores, etc.) along with a few larger
| apartment buildings. They started being built in many
| cities in the US around the 1880s.
|
| They were fairly walkable but people typically needed to
| use the streetcar to get to work in the central core of the
| city. They're a little less walkable now, at least where I
| live, because the corner stores no longer exist, people go
| to big box grocery stores.
|
| Streetcar suburbs aren't considered suburbs now?
| 0xfaded wrote:
| Total (not anecdotal individual's) productity: WFH does ???
|
| I agree that WFH is positive in all the ways you mentioned. If
| all companies really believed it improved overall productivity
| we'd be there already.
| Someone1234 wrote:
| We cannot reliably measure medium to long-term productivity
| with or without WFH.
|
| I find it a little galling though that the "Pro WFH" side
| needs to prove it, but the "Nay WFH" side doesn't simply
| because we've arbitrarily pinned that as _normalcy_. I 've
| read studies that support both modalities, and based on
| comparing their methodology it seems very easy to construct
| them to show any conclusion you set out to show.
|
| I'd argue given the benefits I set out above (and others), a
| higher burden of proof should be asked for in-office, rather
| than just accept it as the De facto standard and setting the
| bar high to challenge it. If they both started on even
| footing WFH would win because the benefits are quantifiable,
| whereas in-office are anecdotal.
|
| PS - In the above I even forgot all the family benefits of
| WFH.
| AlotOfReading wrote:
| I'm not suggesting that WFH is "plainly rational", but we
| have plenty of examples where the corporate world will
| persist in irrational beliefs long after any principled
| approach would have given up. How many years did it take for
| the corporate world to get over the belief that women could
| only be nurses, secretaries, and typists, for example?
| Corporations are made up of people and they're not
| collectively beholden to any particular logic or rationality.
| throwbadubadu wrote:
| You'd be surprised how little is based on facts and data and
| how much is feelings and beliefs and just somehow
| reconfirming them... on all levels far beyond WFH/WFO debates
| (:
| ilyanep wrote:
| People need to stop with this whole "only commercial real
| estate supports working from the office" nonsense. Some of us
| simply want our job to provide us with a space where we can
| work that isn't 10 feet away from where we spend the rest of
| our day, the same way that our job provides us with other tools
| we need. Not that I'm necessarily defending forced RTO but I
| hate this framing of the issues.
|
| Also if your vision of WFH is that everyone sprawls out then it
| doesn't solve some of your other issues: people will still need
| to use their vehicles to get places (because unless we solve
| the root issue of 'too few homes' then those people will be
| spread out from each other or services to not create more
| cities with too few homes) and their sprawled out suburban
| communities will not suddenly become more walkable. They'll
| just drive everywhere.
| labcomputer wrote:
| > Also if your vision of WFH is that everyone sprawls out
| then it doesn't solve some of your other issues: people will
| still need to use their vehicles to get places (because
| unless we solve the root issue of 'too few homes' then those
| people will be spread out from each other or services to not
| create more cities with too few homes) and their sprawled out
| suburban communities will not suddenly become more walkable.
| They'll just drive everywhere.
|
| Partially disagree.
|
| Maybe I'm not representative, but most of my family's driving
| is specifically _commuting_. All other weekly errands add up
| to less than one day of commute driving. Actually, less than
| _one way_ of one day of commuting.
|
| Unless you compare a "fully rural" drive-60-miles-to-get-
| groceries lifestyle to basically a "downtown manhattan" walk-
| to-the-office one, I'm skeptical that total car-miles will
| increase when transitioning from WFO to WFH.
|
| Most "completely non-walkable" suburbs will still have a
| grocery store within a few miles, usually in a so-called
| super center with a bunch of other stores. I don't have data
| to back this up (other than talking with coworkers), but my
| sense is that people who talk about transitioning to a
| "rural" WFH really mean "move to a small town" or "move to
| the outskirts of an exurb".
|
| So, even if they become completely car dependent, they're
| still reducing from 50 commuting miles per day to 2-3
| "errands" miles.
| throwbadubadu wrote:
| > people will still need to use their vehicles to get places
|
| Hmm ... walkable neighborhood has even become more livable
| and walkable, all my car uses could now be public transport
| or car sharing.. needing one now maybe at most once or
| twice.per month, sometimes less.
|
| > we solve the root issue of 'too few homes' then
|
| Yes.. but on the other hand you can mix only so many homes
| around offices.. which would make my neighborhood less
| walkable again.
|
| Also I neither want to be location dependent for job
| selection, nor do I want to move due to jobs? Kind of
| arrogant privileged view, on the other hand, why not just
| leave the space for people that actually really need to live
| nearby their working location, like the merchant, the doctor,
| etcetc?
|
| > Some of us simply want our job to provide us with a space
| where we can work that isn't 10 feet away from where we spend
| the rest of our day
|
| If you really have that luck to be able to live that close to
| your office, great.. but how long will this hold? I idiot
| actually moved pre-pandemic closer to the job, just that they
| wanted a cheaper location and reorganize and moved then farer
| away, lol, so I had 2 month of 10 minutes to work :) Until I
| get that back I prefer not to was so much time travelling for
| barely nothing.
| add-sub-mul-div wrote:
| It's also ridiculous because it demonstrates a lack of
| understanding of sunk costs. If a company with an office is
| that concerned about costs, it's cheaper to keep the office
| closed without paying for utilities and all the other
| overhead.
|
| A lot of people here just want to work from home and the
| range of social and economic problems they work backward to
| have WFH solve is astounding.
| [deleted]
| burnte wrote:
| That's fine, but we're trying to make sure going back to the
| office isn't a REQUIREMENT but a luxury. You go to the
| office, I get more done here.
| JumpCrisscross wrote:
| > _we 're trying to make sure going back to the office
| isn't a REQUIREMENT but a luxury_
|
| There are multiple equilibria. I like hybrid work. That
| doesn't mean others shouldn't be allowed to require office
| time. The market will work this out in tech; employees have
| bargaining power.
| ghaff wrote:
| I don't actually believe in the whole commercial real estate
| conspiracy. The employers who actually have the agency here
| are presumably mostly not so stupid as to be making decisions
| based on (often relatively short-term) sunk costs.
|
| But if those same employers are OK with employees who want to
| and can productively work from home, they're also justified
| in largely ignoring the preferences of employees who would
| prefer a bustling in-person office.
| bugglebeetle wrote:
| It's not so much about individual investments, but how
| commercial real estate sits as an asset class in wealthy
| people's portfolios generally. There's no scenario where a
| 2008 for commercial real estate doesn't cost them a lot of
| money, so it's in their material interest to push for back
| to office.
| ghaff wrote:
| That's sufficiently indirect and diffuse that I don't
| really believe it. That's a bit like Amazon is a non-
| trivial part of my stock portfolio even through index
| funds so I'm going to make us go all-in on AWS _for that
| reason_ (as opposed to other herd-following reasons that
| may be good or bad).
|
| Especially among execs who have so much wealth that
| commercial real estate holdings, much less the ones they
| can directly influence, are in the noise.
| bugglebeetle wrote:
| An individual investor has nowhere near as much sway over
| masses of other people as the business owners we're
| describing here, so this analogy doesn't hold. If you
| could invest in Amazon while simultaneously forcing
| others to spend millions on their services, you probably
| would!
| function_seven wrote:
| > _It's not so much about individual investments, but how
| commercial real estate sits as an asset class in wealthy
| people's portfolios generally._
|
| Those same individuals also own companies that pay rent,
| and so also have an incentive to reduce the amount of
| money spent on that.
|
| I don't think anyone in the managerial class is looking
| at their E-Trade asset mix, and deciding that they should
| change company policy to protect their investments. One
| decision at one company isn't going to move the needle
| one iota. And even if it did, it would move another
| needle the other way (companies are tenants, not
| landlords).
|
| Much easier to sell the real estate and purchase more
| shares in companies that were once tenants.
| bugglebeetle wrote:
| To whom would they sell this real estate in a tanking,
| high-interest rate market, exactly?
| JumpCrisscross wrote:
| > _whom would they sell this real estate in a tanking,
| high-interest rate market, exactly_
|
| Anyone with the political connections to get a
| residential conversion approved. The wealthy elite are
| uniquely positioned to profit from this in a civically
| inactive and politically insular city like San Francisco.
| adam_arthur wrote:
| Most employers don't own any real estate at all... they
| lease it. It's extremely uncommon for companies not
| directly in the business of Real Estate to own their own
| buildings... there's probably some single digit % of office
| space owned by the company occupying it.
|
| There may be an incentive for executives tied to local real
| estate, though. e.g. owning a home in the Bay Area, and
| seeing it get devalued as everyone is moving away.
| Residential prices have been falling in the Bay Area... but
| then NYC has been pretty stable and there's still an urge
| for BTO there among the banks. Finance is much more
| relationship driven than Tech, though.
| oceanplexian wrote:
| The companies I worked for in San Francisco signed like
| 10 year leases for premium real estate in the city
| (millions per year). Before COVID it was a "sure thing"
| that prices would only go up, incentivizing longer and
| longer leases.
|
| I suspect this is the real reason big companies are so
| incessant about RTO. They have to stay or breach the
| contract which would cost a ridiculous sum of money.
| Funny enough I've observed the exact same behavior when
| buying colo space or circuits in a datacenter. The
| previous person would sign a 10yr contact and act like we
| saved a ton of money, then we'd be stuck paying
| $10,000/mo for a 100Mb internet connection long after
| prices dropped an order of magnitude. Unfortunately there
| is no requirement for critical thinking skills to sign a
| contract.
| adam_arthur wrote:
| I have noticed this as well, companies leaning on the
| sunk cost fallacy to feel more comfortable throwing away
| the rent by having the office occupied. In the end its
| much better for companies if office rents fall
| substantially, so why fight it?
|
| In general there tend to be conventions around lease
| durations, and in a hot market you don't have much
| bargaining power to change the terms. The better the
| tenant, the more leverage you have though.
|
| In general the risks of locking into long duration
| contracts needs to be weighed carefully, as we saw with
| SVB
| singleshot_ wrote:
| It's a little astonishing that so many companies reacted
| to "we made our own lives difficult by signing a contract
| for a thing that, it turns out, we don't need" with "we
| can solve the problem by deeply annoying a lot of our
| employees."
|
| I know it's a little more complicated than this, and I
| know there are jobs with Reasons to be in the office (I
| enjoy one) but still... now you have TWO problems.
| nomel wrote:
| > about the environment are just nonsense (looking at Apple in
| particular).
|
| What's this in reference to, with Apple? I don't recall any
| communication that their in-office policy was related to the
| environment.
| idoh wrote:
| I'm surprised to see it that low. Downtown SF is pretty dead. As
| an introvert looking for some quiet time I head into the office
| with an open floor plan to not see people while I work.
| vkou wrote:
| A 100-person office that has one introvert coming into it every
| day because they are looking for some quiet time is not
| considered 'vacant' by this statistic.
| Covzire wrote:
| So the per-desk vacancy, if such a thing were tracked, might
| be much higher than 33%?
| nemomarx wrote:
| The proper way to track it would be traffic in the commute
| hours and spending on lunches and so on during the work
| day, I suppose? Isn't that what cities are measuring and
| looking at with this return to office stuff?
| jacobr1 wrote:
| Correct. Those lower-desk-utilization offices still have
| current leases.
| alchemist1e9 wrote:
| https://www.kastle.com/safety-wellness/getting-america-
| back-...
|
| Those statistics are probably closer to what you want.
| Animats wrote:
| Right. 49% pre-pandemic occupancy, measured by the
| systems that check people in when they enter the
| building.
| alchemist1e9 wrote:
| 43.2% specifically for San Francisco metro last week.
|
| I find the reports interesting and they change through
| time and for example the breakdown by day of the week.
| DeRock wrote:
| I don't even think it would track it if 0 people were coming
| in, as long as the lease is still active. Commercial office
| leases tend to be on the longer end compared to residential
| (eg. 10-year is not uncommon).
| InCityDreams wrote:
| >As an introvert looking for some quiet time I head into the
| office with an open floor plan to not see people
|
| ...maybe they see you coming?
| gumby wrote:
| How thoughtful of then to clear out for him!
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