San Francisco's downtown suffered an exodus of workers and businesses during the pandemic. These closures followed the disappearance or scaling back of some of the city’s most prominent corporate tenants like Facebook and Salesforce.  

But recently there have been small signs of a turnaround. With the AI boom hitting the Golden Gate City and new government policies helping streamline the permitting process for new businesses, San Francisco’s economy could be making a turn.

WSJ explores whether these new city policies and fresh commercial interest can return San Francisco’s downtown to its former glory.

0:00 Exodus of workers and businesses
1:14 Vacant office space
2:27 AI boom in San Francisco 
4:04 Local business owner
5:31 Revitalizing downtown San Francisco

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Before the pandemic, San Francisco's downtown was 1 of the most dynamic commercial districts in the country, home to some of the nation's biggest retailers.

But today, many of those businesses have abandoned the city.

These closures follow the disappearance, or scaling back, of many of the city's most prominent corporate tenants, like Facebook and Salesforce.

Downtown San Francisco today is really a shell of its former self.

The way I see San Francisco from afar, it's amazing.

But once you get into the nitty gritty, like, like downtown and get to the heart of it, it's just, it loses its glamour that it has, you know?

But while a national consensus seems to have formed around downtown San Francisco's demise, some investors and businesses think the worst is over and that the city is now primed for a turnaround.

San Francisco has always been a boom and bust town.

Some retailers like Ikea are moving in and San Francisco's office market is also seeing progress for the first time since the onset of the pandemic, thanks in part to the arrival of AI companies.

But are these recent positive developments really signs that the worst is over?

Today, almost 32 percent of San Francisco's office space is vacant, which is more than 7 times the rate before the pandemic hit, and the biggest increase of any major U.S.

Cyrus Sanandanji is the managing director at Presidio Bay Ventures, a Bay Area commercial real estate developer that sees opportunity in the down market.

Recently, Presidio Bay Ventures acquired the office tower 60 Spear Street in the city's financial district for about $41 million, or some 62% less than it sold for in 2014.

So we purchased 60 Spear as an opportunistic investment, unlevered, with a really long-term horizon.

Understanding that San Francisco is a boom and bust town and looking at historical market cycles, We've not seen basis this low in over 10 years.

With the amount of vacancy that's in the building, 70% today, we were able to really reimagine the entire building.

60 Spares acquisition represents a new positive trend within San Francisco's downtown commercial real estate market.

After a long stretch when the city's office buildings couldn't attract buyers, sales are slowly materializing.

The industry around artificial intelligence could be a lifeline for a struggling American city.

Recently, scores of AI companies have begun leasing space in the city, suggesting that San Francisco's appeal as a tech hub hasn't evaporated.

There's been a boom in artificial intelligence in San Francisco, And in fact, the top 20 companies in the world, 8 are in San Francisco with over 80 companies total of the 223 companies for artificial intelligence that are here in San Francisco.

Despite the new AI tenants and signs of life in the commercial real estate market, serious challenges remain, especially concerning public safety and homelessness.

San Francisco's downtown before the pandemic was just absolutely bustling.

You know, I work on California Street and there were just throngs of people.

Cities saw their office vacancy rates balloon, but San Francisco is the leader nationally.

There's really been a perfect storm which has kind of imploded downtown San Francisco over the last 4 years.

1 is the high housing costs really forced a lot of workers to work many miles away.

Because San Francisco became so concentrated with technology, Technology is the 1 industry which got hit harder by remote work than any other.

And that's why here in downtown San Francisco, these office buildings that surround me are mostly empty.

And then finally, there's been the problem of crime and homelessness, which has been around for years, but it really faster and got worse during the pandemic.

David Lee is a local restaurant owner who has lived in San Francisco since 2005.

This year, Lee decided to close his 2 profitable taco restaurants after multiple robberies and instances of vandalism.

Lee is 1 of many business owners who have become fed up with San Francisco, not just because of the petty crime, but also because of a lack of foot traffic.

When I first started my business, I was averaging about $3,000 at lunch and about $3,000 at dinner time.

But beginning of this year, I was averaging around like $1,000, $1,500 a day.

Once upon a time, this was like the busiest street.

It used to be thriving but now it's nobody walking to or from work.

Lee is now planning to move his business to Las Vegas, Nevada or Austin, Texas.

Because I've been in San Francisco for such a long time and I've just kind of seen the decline of it that I'm just ready to leave.

Downtown San Francisco is absolutely crucial to the health of San Francisco.

It accounts for 75% of the city's budget in revenues.

Most of the jobs are in downtown San Francisco.

Without these buildings full the revenue is going to go down.

So for the city to be healthy as a whole the downtown has to come back.

San Francisco downtown as we know it is not coming back.

In February, Mayor London Breed laid out her vision for revitalizing San Francisco's downtown.

Empty office buildings have fueled dire predictions about economic doom and screaming headlines about the death of downtown.

In 1907, downtown was mostly rubble and ash.

That's considerably worse than today's shift in how people are working.

We do need to, you know, just be realistic.

Breed is working to streamline the permitting process for new downtown businesses, as well as creating more flexible zoning to diversify the uses of downtown properties.

So our economic roadmap to recovery for San Francisco includes a lot of legislative changes to remove the barriers that make it difficult for us to convert a lot of our office space from office to housing.

So we think that it's going to lead to some more housing options.

We think it's gonna lead to other uses besides office space.

And our hope is that we start to reimagine what downtown can be other than 9 to 5, financial district, or even just retail.

And we're going to focus hard on making sure that people understand what we are as a city, not what others say we are.

Breed also pushed back against what she said were unfair characterizations in the national media.

Tonight, Jesse Waters' prime time is declaring San Francisco has hit rock bottom.

There's concern that San Francisco could turn into a so-called zombie city with its

It's not to say that, you know, we don't have our challenges.

Major cities have challenges with crime and violence and other issues.

So I do think that there's a perception that when you see these videos or you hear about what's going on, it's like, oh my goodness, what's going on in San Francisco?

And now what we're finding is someone else has tried to define what San Francisco is and we have to change that narrative.

The mayor has talked about San Francisco having a perception problem where people in other parts of the country think it's basically a hellhole.

There are parts of San Francisco which are in bad shape for sure.

But for the most part, it's a beautiful city.

I'd say if we're not at the bottom, we're very close.

From our perspective and with our investment horizon, we don't need to be perfect and time the exact bottom, though we feel we're there.

Companies are expanding and making commitments to the city, but it's not just in the downtown office space.

Companies want different things now, and so we have to make sure that we are adjusting to what the demand is in so many different arenas.


Speaker 0: Before the pandemic, San Francisco's downtown was 1 of the most dynamic commercial districts in the country, home to some of the nation's biggest retailers. But today, many of those businesses have abandoned the city. These closures follow the disappearance, or scaling back, of many of the city's most prominent corporate tenants, like Facebook and Salesforce.

Speaker 1: Downtown San Francisco today is really a shell of its former self.

Speaker 2: The way I see San Francisco from afar, it's amazing. But once you get into the nitty gritty, like, like downtown and get to the heart of it, it's just, it loses its glamour that it has, you know?

Speaker 0: But while a national consensus seems to have formed around downtown San Francisco's demise, some investors and businesses think the worst is over and that the city is now primed for a turnaround.

Speaker 3: San Francisco has always been a boom and bust town.

Speaker 4: There is a perception problem.

Speaker 0: Some retailers like Ikea are moving in and San Francisco's office market is also seeing progress for the first time since the onset of the pandemic, thanks in part to the arrival of AI companies. But are these recent positive developments really signs that the worst is over? Today, almost 32 percent of San Francisco's office space is vacant, which is more than 7 times the rate before the pandemic hit, and the biggest increase of any major U.S. City. Cyrus Sanandanji is the managing director at Presidio Bay Ventures, a Bay Area commercial real estate developer that sees opportunity in the down market.

Recently, Presidio Bay Ventures acquired the office tower 60 Spear Street in the city's financial district for about $41 million, or some 62% less than it sold for in 2014.

Speaker 3: So we purchased 60 Spear as an opportunistic investment, unlevered, with a really long-term horizon. Understanding that San Francisco is a boom and bust town and looking at historical market cycles, We've not seen basis this low in over 10 years. With the amount of vacancy that's in the building, 70% today, we were able to really reimagine the entire building.

Speaker 0: 60 Spares acquisition represents a new positive trend within San Francisco's downtown commercial real estate market. After a long stretch when the city's office buildings couldn't attract buyers, sales are slowly materializing.

Speaker 1: The industry around artificial intelligence could be a lifeline for a struggling American city.

Speaker 0: Recently, scores of AI companies have begun leasing space in the city, suggesting that San Francisco's appeal as a tech hub hasn't evaporated.

Speaker 4: There's been a boom in artificial intelligence in San Francisco, And in fact, the top 20 companies in the world, 8 are in San Francisco with over 80 companies total of the 223 companies for artificial intelligence that are here in San Francisco.

Speaker 0: Despite the new AI tenants and signs of life in the commercial real estate market, serious challenges remain, especially concerning public safety and homelessness.

Speaker 1: San Francisco's downtown before the pandemic was just absolutely bustling. You know, I work on California Street and there were just throngs of people. I was like, It was like Manhattan. It was like the city of gold.

Speaker 0: Since the pandemic, many major U.S. Cities saw their office vacancy rates balloon, but San Francisco is the leader nationally.

Speaker 1: There's really been a perfect storm which has kind of imploded downtown San Francisco over the last 4 years. 1 is the high housing costs really forced a lot of workers to work many miles away. Because San Francisco became so concentrated with technology, Technology is the 1 industry which got hit harder by remote work than any other. And that's why here in downtown San Francisco, these office buildings that surround me are mostly empty. And then finally, there's been the problem of crime and homelessness, which has been around for years, but it really faster and got worse during the pandemic.

Speaker 0: David Lee is a local restaurant owner who has lived in San Francisco since 2005. This year, Lee decided to close his 2 profitable taco restaurants after multiple robberies and instances of vandalism.

Speaker 2: So this is my old shop. This is the old taqueria. But kind of sad to see it all gated up.

Speaker 0: Lee is 1 of many business owners who have become fed up with San Francisco, not just because of the petty crime, but also because of a lack of foot traffic.

Speaker 2: When I first started my business, I was averaging about $3,000 at lunch and about $3,000 at dinner time. And I was only open for 6 hours a day. It was a short period of time. But beginning of this year, I was averaging around like $1,000, $1,500 a day. Once upon a time, this was like the busiest street.

It used to be thriving but now it's nobody walking to or from work. It's sad.

Speaker 0: Lee is now planning to move his business to Las Vegas, Nevada or Austin, Texas.

Speaker 2: Because I've been in San Francisco for such a long time and I've just kind of seen the decline of it that I'm just ready to leave.

Speaker 1: Downtown San Francisco is absolutely crucial to the health of San Francisco. It accounts for 75% of the city's budget in revenues. Most of the jobs are in downtown San Francisco. Without these buildings full the revenue is going to go down. So for the city to be healthy as a whole the downtown has to come back.

Speaker 5: San Francisco downtown as we know it is not coming back. And you know what? That's okay.

Speaker 0: In February, Mayor London Breed laid out her vision for revitalizing San Francisco's downtown.

Speaker 5: Empty office buildings have fueled dire predictions about economic doom and screaming headlines about the death of downtown. But let's keep some perspective here. In 1907, downtown was mostly rubble and ash. That's considerably worse than today's shift in how people are working.

Speaker 4: We do need to, you know, just be realistic. Retail is not what it used to be. Things have changed.

Speaker 0: Breed is working to streamline the permitting process for new downtown businesses, as well as creating more flexible zoning to diversify the uses of downtown properties.

Speaker 4: So our economic roadmap to recovery for San Francisco includes a lot of legislative changes to remove the barriers that make it difficult for us to convert a lot of our office space from office to housing. So we think that it's going to lead to some more housing options. We think it's gonna lead to other uses besides office space. And our hope is that we start to reimagine what downtown can be other than 9 to 5, financial district, or even just retail.

Speaker 5: And we're going to focus hard on making sure that people understand what we are as a city, not what others say we are.

Speaker 0: Breed also pushed back against what she said were unfair characterizations in the national media. Tonight, Jesse Waters' prime time is declaring San Francisco has hit rock bottom.

Speaker 1: There's concern that San Francisco could turn into a so-called zombie city with its

Speaker 2: downtown hollowed out.

Speaker 4: It's not to say that, you know, we don't have our challenges. We're a major city. Major cities have challenges with crime and violence and other issues. So I do think that there's a perception that when you see these videos or you hear about what's going on, it's like, oh my goodness, what's going on in San Francisco? And now what we're finding is someone else has tried to define what San Francisco is and we have to change that narrative.

Speaker 1: The mayor has talked about San Francisco having a perception problem where people in other parts of the country think it's basically a hellhole. I think that's the reality is not true. There are parts of San Francisco which are in bad shape for sure. But for the most part, it's a beautiful city.

Speaker 3: I'd say if we're not at the bottom, we're very close. From our perspective and with our investment horizon, we don't need to be perfect and time the exact bottom, though we feel we're there.

Speaker 4: San Francisco is growing. Companies are expanding and making commitments to the city, but it's not just in the downtown office space. Companies want different things now, and so we have to make sure that we are adjusting to what the demand is in so many different arenas.

Speaker 0: ♪♪

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The Rise, Fall and Possible Rise Again of San Francisco’s Downtown | WSJ