San Francisco’s  Pending Labor Crisis  and its Effect on the  Office Market

San Francisco’s  Pending Labor Crisis  and its Effect on the  Office Market

    By Tony  Zucker, Executive Vice President,  Dunhill Partners West, 6.29.18

Crisis?  Bubble? Denial? Unreality? Nuts? …San Francisco.      

With Facebook, Salesforce, Amazon, Google, WeWork and others  gobbling up office space based on projected revenues, it’s time  to take a closer look at the numbers.

Let’s start this off  with 29,100. That’s the estimated number of new workers in the city  of San Francisco based upon recently leased space, and soon to be completed  office buildings. This is based on tech companies budgeting 200 square feet per  worker and We work packing them in at 75 per square feet per “member.”

Continuing  with housing…$820,000. That’s the median price for a single-­‐family home in the nine county   Bay Area. In San Francisco -­‐ $1.6 million. A San Francisco condominium -­‐ $1.17 million. In  the past five years, the cost of construction has increased by 50% to $347 per square foot. A San  Francisco apartment unit costs $800,000 to build including fees. A handful of new single-­‐family homes  are constructed annually in San Francisco and most cost over $4 Million.

Now labor…$142,000. That’s  a Bay Area tech worker’s average salary. The median salary for a Facebook employee -­‐ $240,000, a Google employee  -­‐ $197,000, a Twitter employee -­‐ $162,000 and a Salesforce employee -­‐ $155,000. Compare that amount to $52,000.  That’s a skilled laborer’s average salary!

Don’t forget transportation…170,000. That’s the number of daily pick-­‐ups  in San Francisco from Uber and Lyft, which by the way, accounts for 20% of the city traffic. BART and other transit options  are packed (if not maxed out) during commute hours with parking lots filled by 8 AM. BART reports there is a total of 48,000  parking spaces and a systemwide reserved parking waitlist of 38,000 customers. In 2014, we spent an average of 56 hours in traffic,  in 2016 it increased to 82 hours. In 2018? To be determined.

Should I stay or should I go now? In 2013-­‐2014, the Bay Area gained  15,000 residents. In 2016, 24,000 residents left the Bay Area, doubling the previous year’s exodus. When asked, 46% of residents are planning  to leave the Bay Area in the “next few years”.

Now, consider this…Facebook recently executed a lease for the entire building at 250 Howard  Street (Park Tower) for 763,000 square feet. By the end of 2018, Facebook will have office space for 4,000 workers in this building and likely pay  rents averaging in the low $90’s per square foot, minimally $25 more per square foot compared to 7 or 8 years ago. As stated earlier, the median Facebook  employee’s salary is $240,000. And now some more math, 763,000 square feet multiplied by the $25 increase equals $19,075,000.  That is a big  number! But not when  you break it down. The  $19,075,000 divided by the   median salary of $240,000 equals  ONLY 79 workers! When Facebook plans  to fill the building with 4,000 workers,  and with fierce hiring competition, they are  willing to pay the high San Francisco rents to  attract talent. But can they hire enough workers?      

Will the big companies sit on vacant office space as they  struggle to hire workers?

FitBit decided not to sit on  vacancy and is now looking for a sub-­‐tenant for 187,000 square  feet. Clearly, FitBit over extended on the leasing front and is scaling  back.

WeWork, one of the five largest tenants in San Francisco, has been  called “the most over valued company in the world” by a NYU marketing professor  with a value of $20 Billion equal to Boston Properties. Boston Properties owns five  times more property than WeWork leases!

Bottom line…

A  Labor  crisis in  all fields,  especially tech  and construction (skilled  labor).

A Housing shortage  continues because of the cost and  the delays due to complex building codes,   permitting, and procedures.

A  Commute  crunch continues  due to traffic and  public transportation being  maxed out.

This does not  even consider the huge amount of  office space leased in the South Bay  and how a large percentage of those workers  may want to live as close to San Francisco as  possible.

The San Francisco office market hangs  precariously upon tenants attracting and retaining workers   in a market that is expensive and congested. A correction is  looming…sooner than later.

Sources: The San Francisco Business  Times, San Francisco Chronicle, Bay Area News, City of San Francisco,  Polaris Pacific, Jones Lang LaSalle, Cushman & Wakefield, Inrix, Hired, Wall  Street Journal, CoStar, Mercury News.

Email Tony, tonyzucker@dpwcre, who represents  office tenants exclusively.