The big risk to San Francisco’s economy is not tech workers who are leaving the state. It’s tech workers who are not leaving their couch, The City’s chief economist told supervisors at a Wednesday hearing on the state of the industry. Especially if that couch is in another Bay Area city.
The remote work era – not a tech migration to Texas – is the real economic threat to San Francisco, economist Ted Egan told the Board of Supervisors Budget and Finance Committee in a presentation. And that threat is very real.
The abandoned tech offices of San Francisco are a “major risk” to the economy, Egan said. Headlines have swirled about companies and tech workers fleeing San Francisco for Texas and elsewhere. Egan said that narrative has “been in the press, and while some large companies have left, it’s important to look at the overall data.”
That overall data, Egan said, shows, “Despite the pandemic, The City has added 7,300 jobs in the tech sector. And the number of jobs lost when a business does leave is actually very small, although it can make headlines.” San Francisco lost 85,000 jobs overall during the pandemic. Tech and biotech workers now number around 120,000 at companies based here.
That’s the good news. The bad news? While workers may not be leaving the state, they are often working from home in another part of the Bay Area.
“One thing that is notable about these jobs is that they are increasingly remote,” Egan said. “That is the biggest issue related to technology going forward.”
Remote workers who live in surrounding cities don’t support The City through employment taxes, don’t support merchants and restaurants around their workplaces and don’t fill offices in hard-hit neighborhoods like South of Market, the Civic Center and the Financial District.
Working from home in the East Bay or on the Peninsula might seem close, but it’s not close enough for The City’s economy, Egan said. “It creates a major risk. We really don’t know what it looks like at this point.”
Egan said San Francisco has done five-year forecasts of the economy during the pandemic, but said the outcome remains “highly uncertain.” He told the committee, “We don’t quite know where it’s going to land. It could have a major impact on our city’s economy.”
The hearing on Wednesday was called by San Francisco Supervisor Matt Haney, whose district includes the South of Market neighborhood that is home to Salesforce, LinkedIn, Slack, Okta and dozens of smaller tech startups.
Some of the news was good. Egan showed the committee slides showing increased venture capital investment in San Francisco startups during the pandemic, of job growth, and of relatively few companies leaving The City, despite an onslaught of media reports to the contrary.
But around 20% of current tech job listings in The City are for remote work – and an increasing number of remote workers are leaving San Francisco for cheaper nearby cities. In 2019, around half of the remote workers at San Francisco-based companies lived in The City. In 2020 that figure dropped to around 30%. Housing records suggest a migration of workers to cheaper areas in the East Bay, and even further inland.
That means San Francisco loses employment taxes, diners, drinkers, renters – and the ghostly emptiness of the once-bustling tech sector may linger.
Haney believes The City must fight to bring back the go-go days of San Francisco as a startup hub from a decade ago, when young techies filled SoMa bars and Dolores Park, and big-name companies like Airbnb, Twitter and Uber changed the world.
“Startups have been hit hard,” Haney told The Examiner. “It’s important that San Francisco remains a place where people start companies in the tech sector. We should absolutely be fighting to maintain our place as the hub of the startup economy.” Haney said The City should “reduce the burden financially. Other cities are doing that, and we have to compete for startups now.”
In the hearing, Director Kate Sofis of the Office of Economic and Workforce Development brought up “the elephant in the room” – industry incentives.
The City has a black eye from a major incentive plan for Twitter that ultimately cost $56 million. Sofis was careful to urge new ways to incentivize young companies to launch in San Francisco. She believes The City and companies can work together to involve a diversity of San Franciscans in the tech industry through apprenticeship programs. She says San Francisco can work to make neighborhoods around tech hubs cleaner and safer – and to woo back workers who were drawn to San Francisco’s culture before the pandemic.
“Ultimately tech companies are here because their employees want to be here,” she said.
But if the issue is not so much recruiting the companies to stay as recruiting the employees to live here, how can The City spark that revival?
Egan said real estate trends are in motion, and that could point toward more changes. Big tech companies that bought up lots of real estate are now subleasing to smaller tech companies, he said. And in a historic reversal, rents are dropping in San Francisco. Those trends could help both startups and startup workers.
And those workers could help determine how The City’s economy rebounds, Egan believes. “Employees in the tech sector are very powerful at the moment,” the economist told the supervisors Wednesday. “The companies are listening, because they don’t want their employees to get poached.”
Right now, tech employees very much want remote work, Egan said, pointing to a survey on the social network Blind signalling work flexibility and job satisfaction are closely tied.
But Haney believes, as the world opens up, a startup scene in The City can flourish again – in-person, as well as remotely. “What’s at stake here coming out of the pandemic is whether San Francisco can still be that place where people come to change the world. Do entrepreneurs want a place to connect with others? That life, that community, is a large part of what San Francisco can offer.”
Adam Mesnick, owner of the lunch place Deli Board, which swarmed with startup workers in SoMa every weekday before the pandemic, hopes there can be a comeback there.
“The tech companies would come down here in hordes,” says Mesnick, whose upscale sandwich joint just celebrated 10 years in SoMa. “There were a lot of tech bros. I called it Dude-A-Thon.” But the popular lunch spot has had to pivot away from a tech-only patronage and toward families and neighbors, for instance by opening on Sundays.
Mesnick wants help for small businesses like his – as well as for startups. The City needs to provide some help to both, he believes. “There have to be innovative ways to get people to work here, especially small companies. It felt like things were coming back before the delta virus, but now it feels like the world may not come back so fast.”