For almost as long as we’ve been tracking the COVID-19 pandemic, sf.citi has been closely monitoring the San Francisco tech exodus. Of course, some of the forces driving this phenomenon—remote work and the growing appeal of cities beyond San Francisco—predate 2020. Few can argue, however, that the pandemic has accelerated these trends. What we’re seeing today is nothing short of a mass migration of tech companies and tech employees outside of the San Francisco Bay Area.
To help you keep up with fast-moving data surrounding the San Francisco tech exodus, sf.citi created an all-in-one resource. Below, you’ll find the latest insights about tech’s relocation, the economic implications of a tech exodus in San Francisco, and context around the policies that have led us to where we are today.
Is there information or data about the San Francisco tech exodus you think we’re missing? Let us know by emailing firstname.lastname@example.org. For media inquiries, please contact sf.citi Marketing and Communications Manager Jacqueline McGraw at email@example.com.
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- San Francisco’s office vacancy rate has risen to 17.8 percent with the amount of vacant office space surpassing levels after both the 2008 Great Recession and the dot-com bust. According to data from Cushman & Wakefield, San Francisco also recorded the lowest level of new leasing activity since at least the 1990s.
- The Bay Area’s proportion of VC deal count in 2021 is expected to fall below 20 percent for the first time in history. “The COVID-19 pandemic and subsequent exodus from San Francisco will only exacerbate this trend,” writes VC analyst Kyle Stanford in PitchBook’s 2021 US Venture Capital Outlook report.
In January 2021, sf.citi surveyed 83 tech founders and CEOs, the majority of whom said they plan to downsize their presence in San Francisco and factor local regulations into their decisions to grow (or not) in San Francisco.
Prominent Tech Companies Downsizing IN or Moving from San Francisco
Digital Realty announced it would move its headquarters from San Francisco to Austin, Texas. CEO A. William Stein cited Austin’s “affordable cost of living” and “supportive business climate” among reasons for the move.
Yelp listed all 14 stories (161,876 square feet) of its San Francisco headquarters for lease. Although Yelp intends to maintain a presence in San Francisco, a Yelp spokesperson confirmed that remote work has prompted the company to rethink its office needs: “With more employees working remotely we’re reducing some of our footprint in San Francisco.”
San Francisco-based Initialized Capital released data on how their portfolio companies will approach offices and remote work after the pandemic. Over 36 percent of Initialized’s portfolio companies plan to be fully decentralized after the COVID-19 pandemic. And 40 percent of founders say that the best place to start a company will be in the cloud (rather than San Francisco).
Remote Work Policies Among Prominent San Francisco Bay Area Tech Companies
Tech Workers Are Also Leaving San Francisco
Year-over-year median rent drop of a one-bedroom apartment in San Francisco
Year-over-year drop in the Bay Area’s tech worker inflow/outflow ratio—the steepest decline nationwide
- Between March and November 2020, over 80,000 people moved out of San Francisco, according to USPS address change data. That represents a 77 percent increase (or about 35,000 more requests) from the same time period in 2019.
- In 2020, U-Haul saw a 9 percent increase in departures from San Francisco compared to 2019. Across the broader Bay Area, U-Haul arrivals from March to December 2020 dropped 31 percent year over year.
- The Bay Area added just 96 tech workers for every 100 tech workers that left between March and October 2020.
HOW THE TECH EXODUS AFFECTS SAN FRANCISCO
Tech’s Contribution to the San Francisco Economy
- San Francisco relies on a robust office space market for critical revenue, including for affordable housing. In the fall of 2019, the Board of Supervisors passed legislation to substantially increase the linkage fee on nonresidential developments—from $28.57 to $69.60 per square foot by 2022. The slowdown in San Francisco’s office space market will mean less office space development, which in turn will hurt San Francisco’s affordable housing funding. (Proposition E passed in the March 2020 San Francisco election will also not help.)
How a Tech Exodus Will Impact San Francisco’s Economy
- In 2020, San Francisco’s sales tax revenue dropped by as much as 70 percent in San Francisco’s downtown, which relies heavily on restaurants and hotels.
- In a five-year budget forecast, the City Controller’s Office predicts hundreds of millions of dollars in budget shortfalls over the next five years due to a widening gap between the City’s revenues and expenses.
- Current and future San Francisco budget deficits are directly tied to losses in hotel, business, and sales taxes. The San Francisco Business Times reported that the City expected close to $1.5 billion in business taxes in 2019-2020 but ended the fiscal year $228 million under budget.
- From April to June 2020, revenue from San Francisco’s local sales tax dropped to $30.8 million, a decrease of 43 percent from 2019. Stay-at-home orders resulted in steep declines in brick-and-mortar sales taxes throughout the Bay Area. All of the counties surrounding San Francisco, however, saw increases in online sales taxes while San Francisco registered only a 1 percent increase—the worst showing among California’s 20 largest counties. Speaking to the San Francisco Chronicle, San Francisco Chief Economist Ted Egan attributes the drop in revenue to “tech people moving.”
The city’s near-term economic outlook relies mostly on the decisions [San Francisco’s office industries and their employees] make about the value of their downtown office space.
—San Francisco City Controller’s Office, Five-Year Financial Plan
- There is a fundamental link between the tech industry and San Francisco restaurants and small businesses, particularly in the City’s downtown. OpenTable data suggests San Francisco restaurant closures are up 35 percent year over year. Laurie Thomas, Executive Director of the Golden Gate Restaurant Association (GGRA), meanwhile, predicts that 85 percent of San Francisco restaurants will close if they don’t receive government aid.
WHY TECH IS LEAVING SAN FRANCISCO
It Costs A LOT to Do Business in San Francisco
- Despite being heralded as the innovation capital of the world, San Francisco policymakers have spent the last near-decade mounting regulatory barriers against the tech industry. In 2013, San Francisco protested private commuter shuttles. In 2018, San Francisco ordered scooter companies to cease operations. And in 2019, San Francisco attempted to ban corporate cafeterias.
Divisive rhetoric and policies that seek to punish the tech sector and tech workers will only smother San Francisco’s innovation economy and fiscal sustainability for the long term. Now is the time to end the ‘us vs. them’ dynamic and work together to rebuild. San Francisco can be at its best again when we come together to improve our City.
—Ron Conway, Founder of SV Angel and sf.citi Board Chair
- In 2020 alone, San Francisco passed three substantial tax increases on the tech and business community. These included a “CEO tax” and a gross receipts tax that increases the rate on the tech industry to double that of other comparable cities such as Seattle.
- San Francisco’s record on taxes reflects a statewide trend. According to the Tax Foundation’s 2021 State Business Tax Climate Index, California’s tax system is ranked the second worst in the country. For corporate taxes, California falls into 28th place, while it lands very near the bottom ranking—49—for individual income taxes.
San Francisco Is the Most Expensive City in the United States
- Even with rents dropping by more than 20 percent, San Francisco remains the most expensive city in the United States with the median price of a one-bedroom apartment towering above other cities at $2,650/month.
- A recent study by the AEI Housing Center found that the average tech household can afford a home in 90 of the 100 largest metros in the United States. San Francisco ranked among the six least affordable metros for tech workers, with the average tech household able to afford only 21 percent of available homes in San Francisco in 2019.
- Between 2010 and 2018, San Francisco produced only one new unit of housing for every 8.5 new jobs. Local zoning restrictions, meanwhile, render the construction of apartments illegal in approximately 75 percent of San Francisco. And San Francisco policymakers have repeatedly opposed measures to upzone, including California Senator Scott Wiener’s landmark housing bill, SB 50, which would have increased housing density around transit corridors throughout California.
- Prior to the pandemic, the San Francisco Bay Area housing crisis led to a growing number of super-commuters traveling more than 90 minutes to and from work. Between 2009 and 2017, the number of super-commuters in San Francisco County increased by 110 percent with many of the surrounding counties seeing even greater increases.
CLUES ABOUT WHERE TECH IS MOVING
- Austin saw a 5.8 percent increase in information, finance, and professional services jobs in 2020.
- Austin experienced a 148 percent increase in net inflow of Redfin users with the majority of potential homebuyers originating from San Francisco.
- As of November 2020, 35 companies had relocated to or opened new facilities in the Austin area in 2020 alone.
The central location, affordable cost of living, highly educated workforce and supportive business climate have helped make Texas an epicenter for business activity and technology growth.
—A. William Stei, CEO of Digital Realty
Greater Bay Area, California
- 34 percent of people leaving San Francisco relocated to counties that are less than 2 hours away from the City (40 percent relocated within California). The most popular Bay Area destinations for parting San Franciscans were Alameda, San Mateo, and Marin counties.