San Francisco’s tech sector added roughly 7,300 jobs since the start of the pandemic but 17% of the city’s current tech job listings are for remote work, compared to roughly 3% prior to the pandemic, Chief Economist Ted Egan said Wednesday.
Along with posting strong job growth, the amount of venture capital flowing into the city’s tech and biotech industries in 2020 has “really been historic” — over $7 billion in investments were made into companies within San Francisco just last month — said Egan, addressing members of the Board of Supervisors at a hearing called to examine current and historic trends in the tech industry and their impacts on the city’s economic recovery.
So while the city is not seeing signs that local tech employment and investment are waning in a "texodus" from San Francisco, the rise of remote work has created a major challenge in respect to the city’s recovery, having the potential to impact housing prices, migration and the city’s finances post-pandemic.
Roughly 10% of job listings from biotech companies are currently remote.
“The rise of remote work is a different kind of competitiveness challenge for office space in San Francisco, and in my view, it creates a major risk for the city's economy — not just because it's potentially pervasive and a critical sector for us, but also we don't really know what it looks like at this point,” Egan said.
The tech industry — categorized by the city as information and professional services companies — made up 41% of the city’s gross receipts tax revenue in 2019, and biotech companies accounted for 0.5%.
Business tax filings data for 2020 shows that the total payroll apportioned to San Francisco fell by about half from 2019 for the biotech sector. The payroll apportioned by the information services sector fell by roughly one-third, and by nearly a quarter for the professional, scientific and technical services sector.
“This is really due to working at home. It's its workers who would ordinarily have commuted into offices in San Francisco in 2019, who don't live in the city and didn't commute to the city in 2020. Therefore, their payroll isn't showing up as San Francisco payroll,” said Egan.
Less payroll apportioned to the city translates into a reduction in tax revenue.
The increase in remote work has also impacted housing prices. In San Francisco and throughout the Peninsula — where a majority of tech and biotech jobs are clustered – single family home sale prices have increased marginally between March 2020 and July 2021, said Egan, citing data provided by Zillow.
While housing prices dropped in neighborhoods near downtown San Francisco, they grew between 5-10% along the Peninsula and pockets of the East Bay. Further out, in areas such as eastern Contra Costa County, San Joaquin County, Sacramento, Marin, and Napa, "places that you might move to if you weren’t expecting to commute to San Francisco or to the Peninsula as much for your tech job,” according to Egan — have recorded a growth in housing prices by as much as 30%.
“Where has housing price growth been high? It's in outlying areas that are difficult to commute from to jobs in San Francisco or Palo Alto or Santa Clara,” said Egan. “There's a very pronounced pattern of housing demand away from the quarry areas where you have an easy commute to a high paying job and rapid housing price growth in more distant areas, which makes sense if you don't have to commute as often.”
This data points to a reallocation of tech talent throughout the Bay Area and Northern California and is critical to San Francisco, as it “points to how often people are going to be physically in the city doing work and apportioning San Francisco gross receipts,” he said.
Employee expectations around remote work are changing, too, with surveys showing that employee satisfaction increases when presented with flexible work options.
“Employees want a more liberal work from home policy. They want to be able to work from home and they take it seriously enough to have it affect their decision of wanting to stay at the company,” said Egan. “For now, I think companies are listening to their employees.”
Historic levels of office sublease space have hit the market in cities across the nation, with San Francisco leading that trend. Its sublease space inventory has increased by 180% since the start of the pandemic, said Egan. Increased office vacancy has translated to a roughly 15% drop in office rents since the start of the pandemic, which has yet to stabilize, he said.
Tech workers’ absence from the city’s downtown core doesn’t just affect the city’s finances, but other industries such as retail and hospitality. The city’s downtown core recorded a more than 50% drop in sales taxes between the first quarter of 2019 and the first quarter of 2020, according to Egan.
