17.1 Salesforce Towers worth of empty office space spread across SF

https://socketsite.com/archives/2023/07/enough-empty-office-space-for-178000-people-in-san-francisco.html

by josuepeq • 3 years ago

60 72 3 years ago

I wonder how this compares to other cities globally

jeffbee2• 3 years ago

I don't know about outside of America but according to comparable reports from the firm Cushman & Wakefield, Austin boasts 15.7 million square feet vacant, a rate of 25%. The same firm has SF marked at 27% vacant.

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.

dexwiz2• 3 years ago

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?

radicaldreamer3• 3 years ago

Vast undercount -- probably for every city. Commercial financing has convenants which require minimum occupancy, landlords are heavily incentivized to keep tenants on the books even if they're not actually using the space.

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...

tssva2• 3 years ago

According to the chart in this article from April SF had the highest available office space of US major cities but no by a large margin. https://www.axios.com/local/washington-dc/2023/04/24/office-...

22.9% of SF office space was available. Houston 22.2%, Dallas 20.9%, Chicago 19.6% and DC 19.2%.

Zigurd• 3 years ago

I wonder how fudged are those numbers. I know of a town with tons of idle hotel space yet they report an occupancy rate of 65%, which is within a few percent of the typical range of 70%-90%. I suspect some empty properties are listed as "under renovation" even though no work is being done.

zuminator• 3 years ago

I reckon SF was hit particularly hard because it has a heavy concentration in tech compared with other large US cities, and tech workers have most avidly embraced wfh?

xnx• 3 years ago

This article does this exact type of # of notable building's worth of empty space for other US cities: https://www.nytimes.com/interactive/2023/05/10/opinion/nyc-o...

pasttense01• 3 years ago

If the owners would substantially cut the rent the empty office space would rapidly fill up.

latchkey• 3 years ago

With who?

bhewes• 3 years ago

All the people forced to live in small SF housing, plenty of functioning companies in SF Bay Area outside of Tech also need more working space.

pessimizer3• 3 years ago

People who need space for offices and businesses, but are not willing to pay the rates that are being demanded while the properties sit empty?

mwambua• 3 years ago

That might work if there was cheap residential real-estate for the workers to fill up.

theandrewbailey• 3 years ago

Cutting rent means that the property is worth less. That means investors are demanding to know why the property is worth less, and the city collects less property taxes which might lead to politicians asking questions.

While all that may be necessary, it won't happen until it's the only thing that can happen.

lattalayta2• 3 years ago

How much longer do you think property managers can hold out?

mistrial9• 3 years ago

"fox guarding the hen house" is an old way to describe this. Gatekeepers have financial and competitive reasons not to make adjustments, and they do not.

radicaldreamer3• 3 years ago

Owners are not able to cut rent as most commercial financing have covenants which require a minimum lease rate/sq foot. If they cut rent, they could be in technical default and lose the building.

Commercial financing has onerous terms which should be stricken by the government/courts.

khuey• 3 years ago

They're going to lose the buildings eventually when the loans need to be refinanced at much higher interest rates while commanding much lower rents.

lucianbr• 3 years ago

Seems like whatever entity did the financing would be motivated to relax those terms. Empty buildings can't be good for them either, can they?

legitster8• 3 years ago

They could cut rent drastically and people still might not show up.

Also, if the owners start going bad on their debts there is a potentially cascading financial problem for the city of San Francisco

pessimizer3• 3 years ago

They could cut rent drastically and people still might not show up.

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.

atleastoptimal• 3 years ago

Given that Salesforce towers can be a measure of unutilized space, could the amount of total internal non-productive bullshit in a company be measured in Salesforces?

geodel2• 3 years ago

That seems like reasonable idea. A kind of nano/micro/mini SFBU for team/group/department levels and SFBUs at whole company level.

dexwiz2• 3 years ago

For comparison, it looks like it was hovering around 6 million square feet before the pandemic, or ~4.5 Salesforce Towers. I wonder how much of the still occupied space is functionally empty now, or only used a few times a week.

Apocryphon• 3 years ago

I wonder how much of that office space is viable for converting into residential housing, both physically-speaking and zoning-wise.

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.

radicaldreamer3• 3 years ago

Almost none is going to be easy to transform, primarily because of the need to gut plumbing entirely -- offices don't support the shower/bath/kitchen needs of dozens of residential condos.

Compartmentalization will be a lot easier though since most offices are built to be fairly modular/open plan.

lattalayta2• 3 years ago

Boston is implementing massive tax breaks and partnerships with developers to make it happen. https://www.bostonplans.org/news-calendar/news-updates/2023/...

toomanyrichies• 3 years ago

As long as we're using our imaginations, I'm genuinely curious how much NIMBYism would come into play when trying to retool downtown into primarily residential towers.

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.

brandur• 3 years ago

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.)

legitster8• 3 years ago

I don't think this is a physical viability problem (we convert old industrial warehouses into lofts all of the time).

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.

craigkerstiens• 3 years ago

At the moment some of even the salesforce tower space is being sublet and used by weworks. At the moment it's really a great time to take advantage of some of the wework setups if you want to be in SF. The rates haven't changed much, yet the general space and quality of amenities to me seems not far off from some of the posh setups of Heroku or GitHub (maybe not quite that level but not far off).

Thoeu388• 3 years ago

I would love to have my own habitable storage unit in downtown SF. 200sqf, air vents, no windows, shared bathroom with shower.

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.

shortcake27• 3 years ago

I’d rather have 5 of these around the world than a single property that has way too much space for me. I never open my curtains anyway.

But it just isn’t a thing. Surely the margins would be decent? The demand must be too low.

oofta-boofta• 3 years ago

You're describing a flophouse and/or SRO. They were slumlord-specials for a long time in the US, but where mostly regulated away.

https://en.wikipedia.org/wiki/Flophouse

legitster8• 3 years ago

US cities are going to be in a world of hurt here pretty soon.

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.

thinktown• 3 years ago

Such great and thoughtful prose. Thank you for writing it. (Genuinely!)

majormajor4• 3 years ago

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.

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.

geodel2• 3 years ago

Before I run this thought experiment, I'd like to know what percentage of top 20-30-50 cities in the world where average income people are not priced out of city centers / downtowns or other desirable areas.

legitster8• 3 years ago

I don't disagree with anything here except the idea that (for most cities, at least) cheap housing creates growth. Especially after reading Alain Bertaud (who I would strongly recommend on this topic).

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.

orangepurple• 3 years ago

American cities are huge money laundering fronts using real estate.

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.

Exoristos• 3 years ago

Shades of Tommy Wiseau.

jkaptur• 3 years ago

I learned yesterday that the term of art for what you're describing is "urban doom loop".

cbron• 3 years ago

"Cities" is the wrong word here, it's really "downtown" or "city center" areas. The center of activities will move outwards toward the suburbs, but stay in the wider metro area. This has been slowly happening for a while in many (most ?) metro areas, but the pandemic will certainly expedite things.

marssaxman• 3 years ago

The suburban reaction to the pandemic is a real shame. For a while there, it had looked like we might finally reverse the awful tide of sprawl.

doylio• 3 years ago

Until the ponzi scheme that is suburbia bankrupts the city

legitster8• 3 years ago

Sure. But if you are Seattle or San Francisco or any other number of examples, the actual city boundaries are quite small. So while you pay for city services that the larger region might get to enjoy (transit, housing authority, etc), your funding pool to draw from might still be shrinking.

8f2ab37a-ed6c2• 3 years ago

How cyclical is this? Say there is a middle-class-flight for the next few decades to the Peninsula or Marin, SF deflates for many years, then eventually artists start moving in for the cheap rent and abundant space, and the cycle starts all over again, the $10 cold brews return. I think this was somewhat the case with Downtown Los Angeles.

legitster8• 3 years ago

I've heard similar things about New York as well. In the 70s, NYC was a crime filled mess. But it was cheaaaaap. And the cheapness brought in young cool bohemians and now it has the opposite problem.

newsclues• 3 years ago

"Cities exist as job markets."

That's changing. Cities are beginning to exist as playgrounds for the privileged.

legitster8• 3 years ago

Maybe NYC or a few other coastal "cool" cities, but for the vast majority of urban areas I am familiar with this doesn't seem to be the case.

gochi• 3 years ago

What I don't understand is why we're still stuck with this idea that entire buildings need to be dedicated to one thing and one thing only. "Hybrid" spaces are still so rare and they wind up being not all that hybrid, more like 2 giant sections one for retail and one for office.

jjtheblunt• 3 years ago

Chicago and New York are at least full of buildings with multiple purposes, and have been for at least 50 years.

Mountain_Skies• 3 years ago

One interesting job market change I've seen in the past two months has been the return of the private office. After a couple of decades of moving everyone they could into bullpens and other open areas, it appears that some managers see private offices, while not as good as open floorplans, better than having their workers at home completely out of view. Longterm leases and reduced headcount physically in the office makes these private offices, with floor to ceiling walls and doors that close, viable, at least for now. It's still only a single digit percentage of job postings mentioning private offices and it'll be interesting to see if the trend of offering them grows.

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.

kneebonian• 3 years ago

SF was a one trick town, software, that software wealth in the later stages was built on low interest rates and cheap money. That is no longer the case, and SF will end up going the way of Detroit.

8f2ab37a-ed6c2• 3 years ago

Hasn't SF been going through boom and bust cycles since 1849? A gold rush begins, starry-eyed people move in with big dreams, most don't make it and have to leave, a few lock in real estate and get to rent seek the next batch of space cadets. Rinse and repeat.

renewiltord2• 3 years ago

Ultimately, all this is not leading to lower commercial rents. So if we can wait until borrowers default, maybe it will. But for now, I'd like a cooled office where I can put a few racks of servers downtown and plug some fiber. I do want access for the moment. Let me know if interested.

17.1 Salesforce Towers worth of empty office space spread across SF

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