S.F. tech companies reducing presence in the city: New surveys support trend

The majority of San Francisco tech companies are cutting their office space and will keep at least part of their workforce remote beyond the coronavirus pandemic, a dire sign for the local economy, according to a survey of 83 companies released Wednesday.

The survey was commissioned by SF.citi, a tech trade group, which warned that a “breaking point” of tech departures and higher taxes could cripple the city’s economy. Remote work has already sent shock waves through the real estate market, with 63% of the surveyed tech companies reducing or planning to reduce their office space. San Francisco’s vacancy rate spiked to 16.7% at the end of last year, the highest level since 2005, according to brokerage Cushman & Wakefield.

“What the data makes abundantly clear is that tech companies and their employees are reducing their footprint in San Francisco, their departure does not bode well for San Francisco’s economic future, and the industry trend toward decentralization is only going to accelerate after the pandemic ends,” said Jennifer Stojkovic, executive director of SF.citi, in a statement.

The city is facing a $411 million budget deficit for the next fiscal year even after voters passed multiple tax increases last year. Downtown and South of Market, once teeming with tech workers, are desolate and filled with boarded-up storefronts.

The trend may accelerate: 55% of surveyed tech companies plan to keep at least a quarter of workers permanently remote, while 36% anticipate half or more of their workforce to stay remote. The majority of companies, 59%, said San Francisco regulations, taxes and policies are factoring into their growth plans.

A separate survey of 90 tech founders by venture capital firm Initialized also showed widespread appetite for more dispersed workforces, a loss for Silicon Valley that could boost the economy of cities outside the Bay Area.

“Everyone is a lot more comfortable with hiring remote now, and it’s very hard to put the genie back in the bottle there,” said Kim-Mai Cutler, a partner at Initialized.

When the pandemic began and companies started going remote, many fled the Bay Area’s high prices for less expensive nearby destinations such as Sacramento, Stockton and Fresno. Others left California for states including Texas and Florida, which have no income taxes. Silicon Valley powerhouses Oracle and Hewlett Packard Enterprise both said they would move their headquarters to Texas, though they will retain large Bay Area offices.

In the 2020 survey among companies in Initialized Capital’s portfolio conducted before the pandemic, 41.6% of respondents said if they were to start a company today, it would be in the Bay Area. New York and Los Angeles were tied at 13.5% each, and Seattle at 10.1%.

The 2021 survey’s respondents knocked the Bay Area out of first place, but not to another city. Rather, 42.1% said their company would be distributed or remote, with the Bay Area in second place at 28.4%.

Austin, Texas, and New York tied with 6.8% each, followed by 4.6% for cities outside the U.S. and 3.4% for Los Angeles. Miami, which has gained attention as a destination for fleeing Silicon Valley expats during the pandemic, received just 1.1%.

Still, tech companies expect the Bay Area to remain an epicenter for the industry, and the biggest firms including Google and Facebook are advancing huge office projects.

Brian Chesky, CEO of Airbnb, said last month that his newly public company is also committed.

“Airbnb is staying in California and I’m staying in California. This is a special place,” he wrote on Twitter. “When I came to San Francisco, I was taken by the unique culture — people believed almost anything was possible, and they were willing to believe in a 26-year-old and his two friends with a crazy idea to let strangers live together.”

In the SF.citi report, board chairman Ron Conway, who invested in Airbnb and other startups, also called for startups to stay.

“I have always believed in San Francisco,” he said. “That’s why I’m calling on my fellow tech and business leaders to commit to staying in San Francisco and helping the city recover from the COVID-19 pandemic.