There are no tumbleweeds blowing through the Bay Area yet, but San Francisco’s chief economist Ted Egan says the city stands to lose between $100 and $200 million in tax revenue by 2028 as a result of record office vacancies fueled by remote work and uncertainty in the tech industry, Bloomberg reported.
With more people working from home, the office vacancy rate in the city climbed to 25% in September and could rise to a worst-case 31% by the fourth quarter of 2023, Egan forecasts in a report.
The vacancies will eventually lead to plummeting commercial property values, resulting in less tax revenue for the city, Egan told the city’s board of supervisors.
The impact will be blunted in the immediate future by long-term leases and a California law that leads to the undervaluing of property for tax purposes.
But if the trend of people working from home becomes permanent, “eventually the city will see sizable reductions in property tax revenue from offices,” according to the report.
That could mean the city having to set aside substantial reserves — $150 million by 2026 and up to $200 million by 2028 — to cover the losses. The most optimistic forecast offered by Egan pegged losses at $100 million by 2028.
The tech industry, the lifeblood of the city’s economy and an early adopter of remote work during the pandemic, is at the heart of the issue. Salesforce, the city’s largest employer, still (for now) allows its employees to decide whether they want to work remotely. The company, however, has struggled this year, with its stock having plunged over 50% in the past 12 months, Insider reported.
City-based Twitter is facing even greater elemental concerns following its recent takeover by Elon Musk. Among his first acts as company chief was to lay half of its workforce some 3,700 workers — before reports Thursday that the future of the company had been called into question.
Egan acknowledged the uncertainty for the future, but, given recent indicators, believed it to be “prudent” to assume declining use of office space in the city.
— Ted Glanzer