The Daily - The Most Empty Downtown in America

Episode Date: February 9, 2023

For the past decade, San Francisco has worked hard to turn its downtown into a vibrant hub, providing a model that other cities in the United States looked to emulate.In the wake of the pandemic, however, many buildings and offices in the center of the city have remained empty.What went wrong?Guest: Conor Dougherty, an economics reporter at The New York Times and author of “Golden Gates: The Housing Crisis and a Reckoning for the American Dream.”; and Emma Goldberg, a reporter covering the future of work for The Times. Background reading: What lessons does San Francisco have for the future of downtowns in America?For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday.

From The New York Times, I'm Michael Barbaro. This is The Daily. For the past decade, San Francisco has been held out as an economic success story, a model that cities around the country sought to emulate. So why, in the wake of the pandemic, has its downtown had the worst recovery of any big city in America? Today, my colleagues Connor Doherty and Emma Goldberg on what went wrong in San Francisco. It's Thursday, February 9th. So, Connor and Emma, tell us about this story that you have been both reporting on and how it brought your two lines of coverage at the Times together.

So I cover the economy and I really focus on cities and kind of urban planning, how the city comes together. And I cover the future of work, kind of what happens in and around the office, which is a space where we often spend more time than we end up spending with our own families. And both of us have been really interested in trying to tell this big story that's been playing out simultaneously on both our beats, which is what happens to downtown districts across the country when workers stop going to the office. Because of our post-pandemic reality. Yes. People working at home, people zooming into their jobs from cities that are thousands of miles from their headquarters. And this leaves a giant hole in downtown and really in sort of our culture.

This idea of having a central place where people come together to trade goods, to find services, to make art and socialize, that has had a really central piece of really human culture for, say, 5,000-ish years. And now that the pandemic has left downtowns largely empty, the question is, can it be saved? Or does downtown have to become something totally different? And it's a question with a lot of money at stake, billions, maybe trillions of dollars. with a lot of money at stake, billions, maybe trillions of dollars. And that's true all across cities around the country, whether it's midtown Manhattan, the Loop in Chicago, downtown Atlanta, or the city that we decided to focus on for this story, downtown San Francisco. We at least have to cross the street.

Oh, okay. I'm just going by my Google Maps. Yeah. And why did you guys choose to focus on San Francisco? Well, every city has been in a similar position in terms of struggling to get people to come back to the office. You've had, for example, the mayor of New York telling people not to sit around in their pajamas all day. But San Francisco's been kind of the worst example.

There's absolutely not many people on the street. And the stores all look pretty empty. This is all measurable. We have data on how full office buildings are across the country. And actually nationwide, they just crossed the 50% threshold of pre-pandemic levels. But San Francisco is still lagging behind. It's about 45%. And it's been about five to seven percentage points below the average of office buildings across the country.

Its downtown has pretty much been sitting empty. Yes, and look at it, retail for lease right here. And Connor and I saw this while we were walking around downtown San Francisco doing our reporting. We saw some boarded up storefronts, some storefronts that looked like they had basically been abandoned and left untouched since 2020. This is almost like one of those, like the nuclear war happened. Retail for lease. Yeah, retail for lease. But, like, I thought it would be empty, but it looks like literally they just walked away from COVID. There's, like, actually a napkin on the... It had this kind of almost ghost town feeling in some parts.

And, Connor, San Francisco happens to be your hometown. So why has it been the worst at drawing workers back? Why is the situation in San Francisco specifically so dire? In a word, tech. So to answer this question, we have to go back in time a little tiny bit. Because San Francisco has not historically been a huge tech city. While San Francisco is often associated with tech, it's like 40 miles from the Silicon Valley. And the two places have kind of been a little bit separate.

For most of its recent history, San Francisco's downtown had revolved around banks, insurance companies, kind of more boring set of businesses that had offices and, you know, people wore suits. That's sort of the change around the late 1990s when the dot-com boom happened. More tech companies started coming and sort of setting up shop in downtown San Francisco. That started to change around the late 1990s when the dot-com boom happened. More tech companies started coming and sort of setting up shop in downtown San Francisco. So it started to have the embers of like a little tech industry, but it wasn't a huge thing just yet. And give us an example of those embers of tech. So one good example is a company called Yelp.

Yelp is, of course, the app that rates different businesses. Okay, Jeremy, can you tell me a little bit about... And I talked to Yelp's founder, Jeremy Stoffelman, who started Yelp in San Francisco in 2004. Was there a reason why you picked San Francisco? I mean, honestly, I'm not sure that Yelp would have succeeded if we weren't in the city. The city was, I think, really fundamental to our success. And, you know, obviously an app like Yelp makes a lot of sense in a city. You have all kinds of local businesses to review and all sorts of things you might do, but want to see if they're worth doing. to see if they're worth doing. But this is also a company being started by a young single guy who was just much more interested in working in a vibrant city like San Francisco than the more

suburban Silicon Valley. You know, for younger people in particular, it's a really attractive place to be rather than the suburbs. And he's also building a company that's trying to attract other young coders, other creative people who probably also want to be in that more exciting, dense, urban environment. Some portion of the top talent decided to like urban living. So there's a lot of ways in which Yelp, as an app, is perfectly suited to a city, and also a lot of ways in which Yelp, the company, was perfectly suited to being built in the city. And then in 2008, the Great Recession hits, and the city is really having a hard time, tax revenues plunging, and they need a new source of

money, basically. They need a new economic boom. And they just bet it all on tech. They start changing the tax structure of the city to sort of favor startups. Building owners started creating these open floor plans that tech companies really favor. A lot of this was building on something that was sort of happening already, but this just supercharged it. This is reversing the trend. Silicon Valley known for its tech industry, but now San Francisco could be luring more businesses to set up shop there. And all of a sudden, San Francisco is kind of like this tech headquarters town. You have all these growing companies that are based in the actual city of San Francisco. Twitter is saying its new headquarters will hold thousands of employees.

Twitter has this brand new headquarters in the mid-market area. Salesforce.com says it is now committed to San Francisco because of its talented workforce and its vibrant lifestyle. Salesforce is building what is going to become the tallest building in all of San Francisco. Uber just went in, taking a mid-rise office building and converting it to open space. Uber, Airbnb, they're all taking on tons of new office space. And Yelp was at the center of this boom, too. Yelp will cut the ribbon on its newly renovated headquarters.

They actually moved to a new flagship office in this renovated Art Deco building downtown. Now I'll turn it over to Yelp founder and CEO, Jeremy Stoppelman. That in many ways symbolized this new period of growth for the city. And the decision to keep our headquarters in San Francisco was a conscious one. As we grow, we're committed to supporting the local economy through job creation and continued investment, maintaining a strong connection to our San Francisco home. All these places are based in the city of San Francisco and bring this flood of young, very well-paid workers to the city. And this triggers a whole economic ecosystem in which people come to work in these tall office buildings and then they go to the first floor to play.

Whether that means going to a bar or a lunch place or a coffee place where it takes a half an hour to pour it over. And this becomes this kind of virtuous economic cycle. People make money selling the internet to people around the world in the top floors, and then they go to the bottom floors to spend that money, which creates retail and other kinds of businesses all around them. So, Emma, what does this new ecosystem of services on the first floor of these office buildings now stuffed with tech workers in San Francisco actually look like? Well, let me give you an example. We met this woman named Maria Saros Mercado. I am native to San Francisco. I've lived here all day. Me too,

I'm from Norway. Oh, nice. I lived on 26th Street. Maria is a lifelong San Francisco resident. She's raising her four kids there, and she's been supporting her family by managing restaurant locations. I started as a cashier slash barista making coffee. Wow. And describe for me working your way up. Oh, so I did not think that I was going to make this a career. And she'd initially had plans. She thought maybe she would go to nursing school. But then she heard about a cafe called Specialties,

and she wound up working there and found out she really liked it. Then I started liking the food and what they were all about. So then I just put school on hold. Tell us a little bit about that company. So Special Teas was a fan favorite among San Francisco office workers that sold sandwiches, salads, and also they were famous for their giant cookies. I love the black and white cookies. They were so good. And life was really busy at the downtown specialties where Maria worked. We can tell when it was going to be busy once we started seeing those lanyards coming in.

It was near a conference center, so early in the morning she would have these big catering orders to deal with. And then throughout the day, there were just streams of people coming in for their coffee in the morning, for their sandwiches at lunch. Because we also had a priority pickup system where people can place their order and it would be ready in 10 minutes. So it was just busy all day. And then at the end of the day, she'd have a 15-minute walk home and she'd get to spend some time with her kids. Did you bring them specialties, cookies or anything else? Yes. And then it got to the point where I stopped because I saw how much calories they had in them and I was like, uh, no. So her career was growing alongside the downtown.

So for San Francisco, this plan they have to lure tech is working and it's working on two levels. It's bringing in the tech, and it's bringing in a host of retail and services that are required to support those workers. So this strategy seems like a pretty big success. Right. In fact, the cycle is working so well that the San Francisco economic model becomes kind of a dream example for cities all around the country. Basically, the conventional wisdom becomes everyone should be more like San Francisco. And there's ideas like if you want to have a bustling downtown like San Francisco has, there should be more coffee shops, more of those fancy pour-over places, more speakeasies. Basically, get workers to kind of want to be

downtown. And then you'll also have this whole economic cycle that supports more workers who are filling all their service needs. But of course, we should say, Connor, that even in real time, there are some powerful critiques of this model that are emerging, right? And we covered a bunch of them in The Times. It's not all wonderful in this era in San Francisco. No, absolutely not. The Silicon Valley tech boom has boosted San Francisco's economy, but it has also pushed housing costs sky high. There are huge downsides in resentment here,

the biggest being high rents. The average apartment rental is now $3,400 a month, the highest in the country. While many landlords are pulling out the welcome mat for the new wealthy techies, long-time residents are being priced out of their own neighborhoods. Rents that are pricing out working-class people. Mm-hmm.

And homelessness is increasing. Critics say San Francisco's gentrification is affecting the city's character. There's a feeling of sort of the tech has overrun the city. Right. Us against them. Yes. Protesters say they're angry that families are being displaced from their homes as more and more wealthy tech f***ers move in. No eviction! It really kind of upends the city in a lot of ways. I'm sick and tired of corporate interest ruling the city.

There's just a lot of anger and a lot of resentment coursing through the city over this idea that it's just become this playground for techies. This is not a joke. This is real. And at the heart of that critique, right, Connor, is really the worry that San Francisco was building itself around tech and not really anything else in this moment.

And the danger, of course, of going all in on one bet like that, of putting all the city's chips on tech, is if San Francisco loses tech, then it loses in a very big way. Right. And that's exactly what happened when the pandemic hit. We'll be right back. So Emma, what does the pandemic and its fallout look like, specifically in San Francisco? So as millions of workers are sent home in March 2020, San Francisco is pretty much like every other downtown. It empties out completely.

But what happens next in San Francisco is unique. Because while a lot of other cities and a lot of other industries are holding their breath and setting return to office dates, tech companies were some of the quickest to because while a lot of other cities and a lot of other industries are holding their breath and setting return-to-office dates, tech companies were some of the quickest to just jump right to, let's stay remote forever. You don't really need a cubicle or someone sitting next to you to write code. So a lot of workers are told, you know what, you're never going to have to come back.

And anyways, San Francisco had been getting expensive for a lot of people. Plenty of workers were happy to have the chance to move elsewhere. People bought houses in Austin or Asheville where they could afford a lot more space instead of being crammed into more shoebox-like homes. So even as other cities and other industries were starting to crawl back, San Francisco and those big tech offices were just sitting completely empty. And Connor, what does this embrace of remote work look like for Yelp, which had seized on the idea of downtown and really come to see it as a big part of the company's success.

Well, so Yelp, like a lot of tech companies, embraces this, telling people very early on, you're never going to have to come back. They start reorganizing the company to hire people in every single state in remote status. And finally, they let the lease on their entire headquarters lapse. They decide, we are never going back to this historic office building where the company has been rooted for years. The beautiful lobby with candy and the cafeteria where everyone got their coffee and sat next to each other

blasting EDM in their headphones and trading ideas. All that, they're just going to let it go. Wow. It's just going to vanish. Yes. And suddenly Jeremy Stoppelman is running a publicly traded company from his living room and decides, you know what? This is not that bad.

And Emma, what does that end up meaning for workers like Maria, whose economic rise in the previous few years very much relied on there being these tech workers in the offices up above those stores. So at the beginning of the pandemic, Maria, like a lot of other workers, saw what happened when that chain broke down. I believe they gave us three days. Wow. She finds out she's out of a job. And the entire industry that she's built her career and livelihood on looks like it's collapsing.

So it was a scary feeling. A lot of questions, a lot of what's going to happen. So Maria's bouncing around jobs for a little while. And then she hears from a friend about an opening at a salad chain called Mixed. So I ended up coming in January of 2022. So Mixed is a kind of high-end, buzzy salad chain. And around that time, Mixed is realizing

that it needs to start expanding its locations outside of downtown San Francisco. I'm very open. I'm very adaptable to change. And I also know that I can develop a good staff. So Mixed realizes that they need someone with a lot of management experience to run their new location. And Maria has a lot of great experience in managing a busy cafe. So they pick her to go head up this new location that they're starting in Mill Valley, which is a really expensive suburb in Marin County with $2 million starter homes and a lot of tech workers who are working from home and then sometimes popping out in the middle of the day to get a salad for lunch. You see a lot of yoga pants, a lot. You definitely see a lot more tennis shoes

here. You don't see a lot of suits and ties here. And they want to talk. They want to have a conversation with you while you're making their salad with them. You know, they want to... Do you get the sense that they've been working from than what she had in downtown San Francisco. Certainly different than what she had when she was working at the specialties downtown. scene that used to exist and that Maria used to cater to has moved to these kinds of suburbs where these workers now want the same thing much closer to home. That's exactly right. Hi, Maria. Hi, good morning.

How are you? Good. Thanks for letting me join. You know, I actually joined Maria on one of her commutes recently. Did you call the lift already? Yep. Okay, perfect. And it used to be that she could just walk downtown to her job.

Now she's commuting out to one of the most expensive, exclusive areas in the country. Is anyone who works there living close to it? No. So nobody who works with Maria can afford to live there. So while all of these tech workers are working from home and saving all this time on their commute, Maria and the people who work for her

end up having to add a lot more time into their day. Do you feel like you could picture yourself doing this routine for a long time? Yes and no. I think the commute might get to me, you know, just because. So it strikes me that when

this so-called virtuous economic cycle we had talked about earlier works, it works for everybody, right? The tech worker in the office, the service worker below. But when the cycle breaks, it keeps working for that tech worker, but it totally stops working for the service worker below, but when the cycle breaks, it keeps working for that tech worker, but it totally stops working for the service worker like Maria.

Right. When the chain breaks, the tech workers get to sit inside their homes, saving money and time because they're not commuting downtown. For workers like Maria, all of a sudden their days get a lot more complicated, a lot more time consuming, and more expensive because they have to go far from where they can afford homes to keep coming into contact with those tech workers. So Connor, where exactly does all of this leave a city like San Francisco?

I mean, how do its leaders talk about this moment and really this dilemma that they now face? Because I don't think it's an exaggeration to say that their job now is really to save downtown San Francisco, right? I mean, tech workers don't seem to be coming back anytime soon. Service workers like Maria are now commuting outside the city to the suburbs to meet these tech workers where they are. So what options does the city have? In typical downturn, what happens is office rents fall to a point at which new companies start flooding back in. And in a sense, that's what brought the Jeremy Stoppelmans of the world and

the new entrepreneurs to San Francisco to kind of create the embers of this eventual tech boom in the first place. But now we're sort of faced with a different question, which is, what happens to this downtown neighborhood if it's not going to have that role as an office center? What role does it have if it's not going to be that? The obvious answer is it becomes a place not just where people work, but a place where people live and work, where people perhaps recreate, where there are arts and all sorts of things, a more 24-hour kind of neighborhood. But the truth is, there's all these really huge impediments to prevent that from happening. Right. For example, one of the things mayors are constantly saying these days about these emptied-out downtowns is, we're going to convert those office buildings into apartments.

Yes, the much-needed housing everyone needs. And it sounds so logical on paper, but the truth is office buildings, as anybody who's ever been in an office building knows, are not really the same as housing. The bathrooms are typically on two sides of the building. The windows are these kind of weird office windows. They are not set up for living. They can be

converted, but it is a massively expensive undertaking. And really, the only reason somebody would undertake it is if they lost so much money on office rents falling so far that they eventually decided they really had no other option. Okay, so you're saying that is actually not an especially practical solution. Turning office buildings into condos and suddenly fundamentally changing the nature and purpose of a downtown. That's one of those great in theory, super hard in practice concepts. I think it can happen. It just can't happen quickly. I mean, Conor, it feels worth observing the fact that as bad as things might seem in San Francisco, cities are resilient. Cities tend to find their way out of crises. And I think about my city, New York City, after September 11th, and I think of all of

the predictions of doom that didn't come true. You may remember these. Skyscrapers were supposedly no longer going to be built in Manhattan. That's not true. We've actually gone through this major skyscraper boon. Lower Manhattan was supposed to be withering. It hasn't. It's thriving.

So it's very easy to perhaps overstate how gloomy the prospects for a city like San Francisco really are. It is definitely easy to overstate it. And I should note that the city has come back a lot from where it was, say, a year ago. It remains the national laggard, as Emma said. But maybe instead of thinking about how they can attract the next set of companies, they'll start thinking about how to fix some of those affordable housing problems, transit problems, all these things that made the city

feel like it was breaking down under the weight of prosperity. If they can fix some of those things, they'll make it a more inviting place. I mean, let's remember this is San Francisco. It's one of the most beautiful cities in the world that has a long, rich history and a lot of people who love it more than anything.

I think that will help carry it to the next identity, but that it's going to have to figure out how to solve some of those really deep problems that made people want to leave in the first place. And so even though it's going to be a really difficult period, even though there's going to be plunging tax revenue and all sorts of questions about how to deal with these buildings, I think that the opportunity to kind of rethink the city and rethink what does a thriving downtown look like, what is the reason to get everyone to come together when they truly don't have to? I think, in a sense, getting the chance to solve those problems is what's going to create the next thriving city. Well, Emma, Connor, thank you very much. We appreciate it. Thanks, Michael. Thank you.

Thanks, Michael. Thank you. We'll be right back. Here's what else you need to know today. On Wednesday, the death toll from Turkey's massive earthquake reached a grim new milestone, surpassing 17,000 people as frustrations grew over the pace of rescue operations. Turkey's President Recep Tayyip Erdogan traveled to the disaster zone to console survivors and to plead for patience.

And in the days since the United States shot down a Chinese spy balloon that entered its airspace, American intelligence agencies have concluded that such balloons are designed to collect information about the military capabilities of countries around the world. The goal, these officials said, was to spy on military bases in particular. Similar Chinese balloons have been spotted over Latin America, Southeast Asia, East Asia, and Europe.

Today's episode was produced by Rob Zipko and Carlos Prieto, with help from Mary Wilson and Stella Tan. It was edited by Mark George, with help from Michael Benoit. Contains original music by Dan Powell and Marion Lozano, and was engineered by Chris Wood. Our theme music is by Jim Brunberg and Ben Landsferk of Wonderland. That's it for The Daily. I'm Michael Barbaro. See you tomorrow.