The trajectory of San Francisco’s economy and commercial real estate markets will depend on how widely the virus and its variants spread, how quickly the vaccine is distributed, how long containment policies like social distancing need to be maintained, and how quickly those with lost jobs can find employment again.

Venture capitalists have invested heavily in locally- based start-ups, as well as mature, but still privately- held “unicorn” companies valued over $1 billion. Venture capital funding remained fairly robust in 2020 all things considered but has faded from 2019 and 2018’s record- setting pace, according to PwC’s MoneyTree Report, and may decline further if an uncertain economic environment shakes confidence among investors. A handful of VC firms are leaving for Texas, but Silicon Valley will remain the leading capital provider for start-ups as both are entrenched in the area, and feed off of its educational institutions, and mega tech and biotech firms.

Despite the notable downturns among several high- profile newcomers, the NASDAQ index, which is heavily dominated by San Francisco Bay Area-based tech companies and correlates with local office using employment historically, has already recovered its coronavirus pandemic and oil shock sell-off losses of early 2020. Large-scale expansion plans from several publicly traded technology companies appear to have slowed, yet remain intact, though it will be critical to watch how the fallout from the pandemic and mobile work adoption affects the tech sector and local real estate demand moving forward.

Fintech start-ups like SoFi, Affirm, and Lending Club had been a bright spot, boosting employment within the sector, which was gaining momentum heading into 2020 since stagnating in 2017. However, even financial service firms have suffered losses in the coronavirus -pandemic recession. Lending Club laid off 460 employees in April 2020, accounting for 30% of its workforce. The local finance sector was devastated in the dot-com crash and slowly recovered from 2007–09 credit crisis consolidations. Employment in financial activities finally rose above its 2007 pre-recession peak late in the 2010’s economic expansion cycle, but never returned to levels achieved in the 1990’s.

San Francisco’s economy was roaring ahead into 2020, as it typically does in expansion periods. Professional and business services – by far the market’s largest employment and office using sector – was expanding by more than 3% annually before the coronavirus pandemic hit in March. Since the city’s early gold rush founding, San Francisco has experienced rapid booms and busts, and the pandemic recession has once again impacted the local economy sharply, as history repeats itself. Based on rapid rent and pricing gains during the expansion, pockets of commercial real estate and a heightened vulnerability to a downfall.

Access to cheap capital and an expanding global economy led by technological advancements drove Bay Area commercial real estate markets to new heights over the past decade. Changes in trade policy and slowing global growth presented headwinds to the economy in the mature phases of the expansion cycle, but the lingering shutdown in response to the coronavirus pandemic has sent the country into a deep and rapid recession. The success of mitigation efforts and federal bailouts, in addition to behavior changes in response to the pandemic, will have a profound impact on national economic recovery and commercial real estate demand.

Real estate investment trusts have stockpiled cash amid the uncertain economic times and lenders were swamped by small-business owners looking for relief as emergency actions in response to the coronavirus closed down tens of thousands of restaurants, bars, theaters, gyms and stores across the country. Business closures in San Francisco are already elevated well above that of other metro’s according to Yelp, and the Bay Area is still slowly opening in the new year following a second surge of coronavirus cases. Non-essential workers are advised to remain away from offices again, and most are planning for a potential return in the summer of 2021 at this point. We will be updating o more information becomes available.

Information and analysis provided by CoStar Analytics