In recent years San Francisco has been plagued with a number of issues that affect the operations of the city. The Chief Economist of San Francisco, Ted Egan, recently discussed the city’s problems with attracting employees to return to the city’s office spaces. The city official predicts the city will never return to the pre-pandemic occupancy it once attained.
Egan anticipates that the city will never return to the real estate valuations it once enjoyed before the pandemic. While on a webinar discussing the impact of the remote work trend, he stated there was something “structural and permanent” about the future of office work. “I don’t know when we’ll get back to the pre-pandemic asset values because I do think there’s something structural and permanent about this,” he said.
Substantiating the significantly lower real estate valuations the city is enduring, Egan pointed out recent transactions such as 550 California Street, which is allegedly selling at one-third of its original value of $108 million that Wells Fargo paid for the building in 2005. He called attention to another critical real estate deal where a commercial building sold for 75 percent less than its asking price.
The economist further explained that he sees a future where employees spend less time than they used to in the office. Egan insinuated there would have to be a change to the model of office spaces to accommodate for increased levels of hybrid and remote work. “I don’t think office workers are ever going to be spending that much time in the office and we’re just going to have to figure out ways, in office centers, to accommodate more people who are there less often. I think that’s kind of the future of office space,” he continued.
Adding to the issue, retail companies are fleeing from real estate in downtown San Francisco. Many high-profile companies have vacated their leases at prominent shopping malls due to deteriorating business conditions as the city’s problems continue to mount with crime. Cinemark Holdings Inc. recently left its lease for a large movie theater at a prominent shopping mall. Due to unfavorable business conditions, the luxury clothing retailer Nordstrom is also closing two of its San Francisco locations.
Shark Tank star and legendary businessman Kevin O’Leary recently spoke about the future of office work and its implications on commercial real estate. O’Leary claimed that if companies didn’t offer competitive remote work incentives, they would be unable to attract the best talent. Therefore, this competition in the labor market would lead to an increased presence of remote work in the economy.
The businessman further explained the economy has fundamentally changed and that far more employees than anticipated are maintaining remote work capabilities. “I want to make a point here about the economy that’s changed because I live and breathe it every day with our portfolio of companies. And getting the data is what’s interesting to me. We found out now, we’ve made the assumption two years ago that 15% wouldn’t return. We’re wrong. It’s 40,” Mr. Wonderful said. The businessman also called many metropolitan areas a “war zone” amid crime increases that no employee would want to commute through.
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