[Marcu]

San Francisco's half-recovery


City in a bottle

Jul 12th 2007 | SAN FRANCISCO
From The Economist print edition
http://www.economist.com/PrinterFriendly.cfm?story_id=9476086

The strange half-recovery of California's prettiest city


TO JUDGE by the interminable queue outside Boogaloos restaurant in the Mission District, San Francisco is thriving again. And there are other signs of recovery. Offices vacated during the dotcom crash are occupied by new web-based outfits. In an area that hosted anti-yuppie marches in the late 1990s, Latino businesses are again being turfed out to make way for juice bars and bike shops. The influx of wealth is less alarming these days, if only because it seems so inexorable. “It's taken as a fact of life now,” says Nickolas Pagoulatos, a local activist.

Yet this boom is unlike the one that began ten years ago. For one thing, it has produced many fewer jobs. Although slowly rising, the number of workers in San Francisco is still 12% lower than during the dotcom era. Since 2000, indeed, the city has shed more jobs than Detroit. And the losses have not just been in the frothy high-tech world. The city's finance and insurance industry has moved or made redundant 15% of its workers, and now employs fewer people than during the recession of the early 1990s. Outside a few niches, manufacturing seems to be in terminal decline.

The face of San Francisco is changing, too. Like other big cities, it is being abandoned by blacks; more unusually, Hispanics are also leaving. Long a childless place, it is becoming ever older. During the boom years of the late 1990s, the city sucked in young people. Since the bust, some of them have aged and others have left, not to be replaced. The Association of Bay Area Governments reckons the population of twenty-somethings in San Francisco fell by 38% between 2000 and 2005.

Boosters, of which there are many, argue that the city is just as vital as it ever was. It remains, they say, the place where everybody wants to be: witness the concentration of highly-qualified residents and the decision to put a new stem-cell research institute there. San Francisco is, indeed, one of America's most alluring and urbane spots. Next to it, every other big city in California resembles a glorified suburb. Yet Kevin Starr, the state's premier historian and a San Francisco native, says that it should really be compared with a more distant place: Monte Carlo.

More than biotechnology or Web 2.0, San Francisco's economy these days is built on leisure. That industry is in fine fettle: bucking the trend, hotels and restaurants employ more people now than they did seven years ago. Domestic tourists scared off by al-Qaeda in 2001 have returned. So have international visitors, lured from Europe by the weak dollar and from Asia by the city's strong links to China. As a result, the cable cars trundling up Nob Hill these days resemble cattle trucks.

And tourists are not the only reason restaurants are full. Michael Covarrubias, a San Francisco property developer, says many expensive flats have been bought by people in their late fifties who have grown tired of the suburbs and no longer need worry about schools. Although lured by the city's bright lights, they may not see much of them. Rich Robbins, another developer, says another trend is towards pieds-à-terre that are empty most of the time. While building homes in Idaho for Californian clients, he was surprised to learn that many planned to do much of their work from the country, heading into the Bay Area only for the occasional meeting, or to catch an opera.

Younger workers often have a similarly detached relationship with the city. Google shuttles 1,200 people a day, many of them from the Mission and other trendy parts of San Francisco, to its headquarters in suburban Mountain View. Such reverse commuting helps to explain why property prices in the city barely wobbled during the dotcom crash. Although it has been flat during the past year, the housing market remains the fourth-least affordable in America, says the National Association of Home Builders.

Those prices pose the greatest threat to the city's future as a crucible of new ideas. Talented people are not always rich, and San Francisco is in danger of losing those who are not to less fashionable places. Alameda County, which includes scruffy Oakland, attracted 40,000 people with bachelors degrees between 2000 and 2005, according to the census—three times as many as San Francisco. Sacramento, a notoriously dull (and cheap) county further to the east, added even more. At present, places such as Sacramento are the bedrooms of the Bay Area. But Pete Bernardoni, a local venture capitalist, says companies have begun to take note of Sacramento's increasingly skilled residents. The main obstacle to more rapid high-tech growth, he says, is that it can be hard to persuade executives to live there.

In November the people of San Francisco will vote for a mayor. They are likely to re-elect Gavin Newsom, a charming man who is best known (particularly among conservatives) for allowing gay couples to marry in City Hall. Although he has tried to make the city more appealing to business, Mr Newsom has presided over a lacklustre economy. And much of the motley crew that plans to run against him—a group that includes a nudist and a man known as Chicken John—would like to see less development, not more.

[fflint]

Usually the Economist's angle on a story is both entertaining and informative, but this cliche-ridden piece rings a bit unserious. In economic terms, "San Francisco-as-Pretty-Vacationland" is a dismissive meme extraordinarily common in some circles (Kevin Starr's among them), and one hardly worth promoting given its attenuated explanatory power; in any case, to paraphrase Mark Twain, reports of our economy's death are greatly exaggerated.

That we have failed to retain the ridiculously high employment numbers of the dot-com boom is not only okay--demand for just about everything outstripped supply during the boom here then--but is also entirely predictable and expected in a cyclical economy such as San Francisco's (and the nation's). SF also hasn't regained the astronomical wealth infusion seen during the Gold Rush of 1849: does that mean we're in decline?

Indeed, I wonder if SF would be spared this Kotkinesque line of thinking--"SF is in decline because it isn't booming as much as in 2000!"--if our highs weren't so high in the first place. And in industries where there have been actual employment declines over more than 15 years, the cause is as likely new technology and economic restructuring as it is any ostensibly explicit regional failing. Although I suppose it is true that the artists have moved on due to unrelenting cost pressures on studio and housing space.

There is, of course, all kinds of anecdotal stuff pointing to the city's healthy non-tourism economy--I'm one of hundreds of thousands of persons who spend the better part of my waking day within the Financial District--but then there are the facts, which aren't kind to this Economist piece.

For example, an article in today's paper shows the Financial District--with tens of millions of square feet of office space--is the healthiest such market in the Bay Area, besting all the suburban markets, and continues to see commerical vacancy rates drop. Ignoring the cyclical context of the city's economy, shortchanging how technology has restructured employment since 1990, and otherwise promoting the cliche of a Potemkin-like "California's prettiest city" image above all is a surprisingly unserious tack I wouldn't have expected from the Economist.

Bay Area market is booming -- rents enjoy healthy increases
Vacancy rates edge down somewhat during 2nd quarter

Robert Hollis, Special to The Chronicle
Tuesday, July 17, 2007

San Francisco's downtown office vacancy rate dropped slightly in the second quarter to 8.5 percent, down a tenth of a percentage point from the first quarter, according to a CB Richard Ellis market survey for the three months that ended June 30.

The slow reduction of available office space -- after a slight increase in vacancies during the first quarter -- was reflected in rising lease rates. Increases have occurred in seven of the past eight quarters, the report said.

Shrinking commercial vacancy rates and rising rents were also recorded in all other Bay Area markets, according to the survey.

Average asking rental rates in downtown San Francisco reached $38.31 per square foot annually, a 6.8 percent increase over the previous quarter and 25.8 percent above the previous year for the entire downtown market, the study said.

Class A central business district rates grew 5.8 percent during the quarter and stand at $45.53 per square foot, while Class B rates rose 7.4 percent to $36.50. In the first half of 2007, overall central business district rates have increased 17 percent, according to Charlie McCabe, an investment specialist with CB Richard Ellis and author of the report on San Francisco and other major Bay Area commercial markets.

During the second quarter, the survey found that available downtown space dropped by 242,000 square feet, reducing the vacancy rate to 8.5 percent. In the South of Market area, available space decreased by 51,000 square feet, lowering the vacancy rate to 6.6 percent.

The Bay Area's hot commercial real estate sales market is partially responsible for the increasing office rents, the study said. Rental rates are rising faster in buildings that changed hands in the past two years.

"New owners have been largely responsible for the increases in asking rates as they push rents to justify recent sales prices," the report said.

Higher interest rates are expected to slow the pace of commercial real estate sales for the rest of 2007, the report predicted.
...
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/07/17/BUGEFR1DT821.DTL

[ignatius]

It is correct on the job front as SF micro area (doesn't include San Jose/Oakland) is still at 1997 levels..
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU0641884000000001&data_tool=%2522EaG%2522

Professional and Financial jobs are improving but still quite low..
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU0641884550000001&data_tool=%2522EaG%2522
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU0641884600000001&data_tool=%2522EaG%2522

And Information-based jobs are also still low...
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU0641884500000001&data_tool=%2522EaG%2522


What's odd is that Kansas City metro now has more Information jobs than SF micro area, even though KC lost many too. SF lost a lot more.
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU2928140500000001&data_tool=%2522EaG%2522

[mhays]

It is correct on the job front as SF micro area (doesn't include San Jose/Oakland) is still at 1997 levels..
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU0641884000000001&data_tool=%2522EaG%2522

Professional and Financial jobs are improving but still quite low..
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU0641884550000001&data_tool=%2522EaG%2522
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU0641884600000001&data_tool=%2522EaG%2522

And Information-based jobs are also still low...
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU0641884500000001&data_tool=%2522EaG%2522


What's odd is that Kansas City metro now has more Information jobs than SF micro area, even though KC lost many too. SF lost a lot more.
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU2928140500000001&data_tool=%2522EaG%2522

An "information job" can range from staffing a call center to writing software. That's the difference.

[fflint]

It is correct on the job front as SF micro area (doesn't include San Jose/Oakland) is still at 1997 levels..
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU0641884000000001&data_tool=%2522EaG%2522

Professional and Financial jobs are improving but still quite low..
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU0641884550000001&data_tool=%2522EaG%2522
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU0641884600000001&data_tool=%2522EaG%2522

And Information-based jobs are also still low...
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU0641884500000001&data_tool=%2522EaG%2522

What's odd is that Kansas City metro now has more Information jobs than SF micro area, even though KC lost many too. SF lost a lot more.
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU2928140500000001&data_tool=%2522EaG%2522

*1997 was the beginning of the dot-com boom. Employment numbers for that year will be relatively high. Holding that only another historic economic boom can constitute a full recovery is obviously unrealistic. A boom is a boom. A recovery is the absence of a bust. SF is not currently in a bust.

*The financial sector has, I suspect, shed jobs in many, perhaps most, US cities due to significant mergers and acquisitions over the last decade. Expecting SF to buck that trend in order to have a "full recovery" is unrealistic.

*It seems to me you'll find most "information" jobs, no matter how you define them, situated in suburban office markets. Thus, comparing the entire KC metro, including all local suburban markets, with the least suburban of three supposed "metro" areas in the economically-integrated Bay Area, is apples-to-oranges.

[ignatius]

Information jobs are defined as...
http://data.bls.gov/PDQ/outside.jsp?survey=sm

Publishing Industry
Newspaper, Periodical, Book Publishing
Software Publishers
Motion Picture and Recording
Broadcasting
Telcom (wired, wireless, satellite)
ISPs, Web Portals
Data Processing and Hosting

In other words, a big bulk of the "creative class" white collar jobs.

San Jose has improved a little, but is also surprisingly lower than KC metro even though they have about same number of total jobs (about 1m for KC metro, San Jose metro and San Fran micro). KC's major portion of 'information' is telcom and data processing/hosting jobs and a fair amount of publishing. San Fran peaked much higher than KC and fell harder than KC in info jobs, so to say San Fran doesn't have as many of those jobs as the burbs is not correct. San Fran peaked at 72K, San Jose peaked at only 47K.

http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU0641940500000001&data_tool=%2522EaG%2522


Back to San Fran recovery. Job-wise, it's looking better but not getting back to peak levels that are metro areas are hitting.

[krudmonk]

Slow or not, they gave us Craigslist and Yelp. Thanks, S.F.

[fflint]

Ignatius, I appreciate the links and numbers-driven discussion, but again I must point out that you are incorrectly equating a "recovery" with a boom, and not merely any boom, but with an historic, record-breaking one. That is not realistic. A boom may indeed constitute a recovery, but a recovery need not constitute a boom. Neither San Jose nor San Francisco will see dot-com-era job numbers again for some time--but that doesn't mean there has been no recovery from the post-dot-com bust.

Also, I really don't know why you continue to compare sections of the Bay Area with all of greater Kansas City, or what Kansas City has to do with the Economist article.

[ignatius]

^I agree with you on the boom/recovery description. I only pointed out KC comparison because the employment base is similar to San Jose and micro SF - each at 1m, so is a valid comparison IMO.

[Gordo]

^I agree with you on the boom/recovery description. I only pointed out KC comparison because the employment base is similar to San Jose and micro SF - each at 1m, so is a valid comparison IMO.

But you're leaving out all of the cities in between (Santa Clara, Sunnyvale, Mountain View, Palo Alto, etc, etc) which have an excess of jobs in relation to households. Though they may be "suburbs", they have inflated daytime populations - San Jose is more of a suburb to those cities than it is a suburb of any other place, or a standalone city.

[ignatius]

The San Jose numbers are their own metro, not city. So likely include Santa Clara, Mountain View and other cities in that area, but probably not much of the upper peninsula, which would be part of micro SF region.

[Gordo]

The San Jose numbers are their own metro, not city. So likely include Santa Clara, Mountain View and other cities in that area, but probably not much of the upper peninsula, which would be part of micro SF region.

Ah, ok. Didn't read the numbers close enough.

[fflint]

A comparison between a discrete metropolitan economy, in its entirety, and some portion of an integrated metropolitan economy carved out under the fiction of "micro area", is apples-to-oranges--regardless of the size of apple or the size of the orange.

As for the supposed aptness of including Kansas City in a thread about San Francisco, I just don't see it.

[roadwarrior]

A comparison between a discrete metropolitan economy, in its entirety, and some portion of an integrated metropolitan economy carved out under the fiction of "micro area", is apples-to-oranges--regardless of the size of apple or the size of the orange.

As for the supposed aptness of including Kansas City in a thread about San Francisco, I just don't see it.

Agreed, but then how do you explain what happens on the east coast?

For example, DC and Baltimore are closer together than SF and SJ (38 miles between DC and Balt). Until very recently, they were considered separate metro areas.

In addition, there is a continuous urban mass from NYC to Philly, even though nobody is arguing that they should be in the same metro area.

I personally don't think that SF and SJ should be separated, but at the same time, I don't think that you could apply a rule for all metro areas in the US or the world, based upon the situation here in the bay area.

[ignatius]

fflint, I disagree, but if that's your opinion, we've heard it. All 3 market areas have about the same employment base so is completely valid to compare no matter the makeup. It's not that difficult to comprehend.

It appears you're invalidating it because you don't care for comparisons that don't support your case. Case in point, you said that SF doesn't have as many info jobs as the burbs, which was not the case in peak years.

[fflint]

I define San Francisco as San Francisco, ignatius. It's really quite simple. It is patently false that San Francisco had more "info jobs" than all of the Bay Area outside San Francisco during the dot-com boom. Now, if you're still clinging to your "micro area" or whatever, remember that at that time this was still recognized as the Bay Area. And I'll reiterate what someone else said: not all info jobs are the same. You know it, I know it, everybody else knows it.

It's unfortunate that you wish to continue to force your artificial comparison by claiming I'm rejecting it for boosterish reasons, when I'm rejecting it because it is an apples-to-oranges comparison, so selective as to be fallacious. You justify comparing an entire greater metropolitan area with one portion of another based on the population of the greater metro, and also the population of the artificially carved-out portion of another metro--but population isn't the measure of economic coherence in a regional economy.

[ignatius]

Sorry, but they aren't my classifications, they are the Feds. San Fran is separated from San Jose and Oakland.

Here are info jobs for each...

San Fran peaked at 71.4K
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU0641884500000001&data_tool=%2522EaG%2522

San Jose peaked at 47.1K
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU0641940500000001&data_tool=%2522EaG%2522

Oakland peaked at 40.2K
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU0636084500000001&data_tool=%2522EaG%2522

San Fran did have more info jobs than the other two. Your point was that urban areas wouldn't have as many as suburbs. Not the case. And if you combine the two, it's not hugely different. In the end, each area declined at a similar rate but SF fell the hardest and is recovering at a slower rate than some other metro areas - KC was one to point out because the employment base is similar size (according to the Feds, not me).

But I'm sure any further discussion would be a matter of semantics so I've made my point and am outa here.

It's rather difficult to have a 'conversation' with you. Seems you have that issue with most people on this board. Later...

[fflint]

Sorry, but they aren't my classifications, they are the Feds. San Fran is separated from San Jose and Oakland.

Here are info jobs for each...

San Fran peaked at 71.4K
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU0641884500000001&data_tool=%2522EaG%2522

San Jose peaked at 47.1K
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU0641940500000001&data_tool=%2522EaG%2522

Oakland peaked at 40.2K
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=SMU0636084500000001&data_tool=%2522EaG%2522

San Fran did have more info jobs than the other two. Your point was that urban areas wouldn't have as many as suburbs. Not the case. And if you combine the two, it's not hugely different. In the end, each area declined at a similar rate but SF fell the hardest and is recovering at a slower rate than some other metro areas - KC was one to point out because the employment base is similar size (according to the Feds, not me).

But I'm sure any further discussion would be a matter of semantics so I've made my point and am outa here.

It's rather difficult to have a 'conversation' with you. Seems you have that issue with most people on this board. Later...
You're the one who has gone ad hominem and tried to make this a "Kansas City versus..." thread. You shouldn't take it so personally when people don't agree with you.

[BTinSF]

*The financial sector has, I suspect, shed jobs in many, perhaps most, US cities due to significant mergers and acquisitions over the last decade. Expecting SF to buck that trend in order to have a "full recovery" is unrealistic.


I suspect your diagnosis is correct as to why financial sector jobs have declined--if they have. I also suspect, however, that it depends how you define "financial sector job". Are bank tellers holding down "financial sector jobs" because we've probably lost a lot of those. And we've lost a fair number of back office jobs at Bank of America which didn't move to Charlotte all at once. BUT--we are probably actually growing the high income financial sector jobs in big-money management (investment banking, asset management for institutions and ultra-wealthy individuals) and that end of the business will get another boost soon when Barclay's Global Investors moves to Foundry Square where it can expand some more:

Headquartered in San Francisco, Barclays Global Investors (BGI) is a monster in the world of institutional asset manager, with over $1.2 trillion under management as of September 2004. A subsidiary of Barclays, BGI operates worldwide in over 40 countries, catering to large corporations, retirement plans, trusts, foundations, endowments, unions and individual investors. Covering virtually every asset class, BGI invests in 52 global stock markets, 18 global bond markets and 50 currency markets.
Source: http://jobs.nytimes.com/texis/company?compid=43133b7857cf60

[bricky]

The article that started this thread seems to be another take on San Francisco as urban Disneyland. I think the reason that this idea has more resonance with SF than with other large metros is because SF seems to me to be the most clear example of a still very pleasant city being economically completely overtaken by the suburbs.

Of course we have tons of cases of American cities just going to hell, and everything moving out to the suburbs. But SF is a somewhat unusual in that the city has remained very pretty and very nice, but has been massively overshadowed economically by some formerly blah suburbs to the south.

[dimondpark]

Ignatius, I appreciate the links and numbers-driven discussion, but again I must point out that you are incorrectly equating a "recovery" with a boom, and not merely any boom, but with an historic, record-breaking one. That is not realistic. A boom may indeed constitute a recovery, but a recovery need not constitute a boom. Neither San Jose nor San Francisco will see dot-com-era job numbers again for some time--but that doesn't mean there has been no recovery from the post-dot-com bust.

Also, I really don't know why you continue to compare sections of the Bay Area with all of greater Kansas City, or what Kansas City has to do with the Economist article.

I think that some outsiders are unaware of the fact that people here are accustomed to downturns and meltdowns-its a cycle that has defined us for the last 3 decades, it doesnt scare us, and will continue to define us so long as we lead the world in innovation-goes with the territory and we'll gladly assume that role because quite frankly I dont think anywhere else can. Just take a look at some cities that were once the nexus of certain industries-they were unable to scale themselves to change and thus fell by the wayside falling into decay-although sometimes it would appear some would like for that happen-envy is so ugly. As someone who frequently invests in startups and has gotten burned sometimes-its always about the bigger picture. The dot com thing had to go down because it was overheated, the bust also provided us clarity and allowed for us to figure out where the industries affected need to grow next. When we figure it out, believe me, the rest of you will know about it and copy us. In the meantime, dont sweat the technique.

Sorry, but they aren't my classifications, they are the Feds. San Fran is separated from San Jose and Oakland.
Yes, and that's the feds fault for not being uniform in its stats. The Office of Management and Budget has already re-combined San Francisco and Oakland into a single MSA(Metropolitan Statistical Area) and San Jose is indeed part of the larger CSA(Combined Statistical Area).

[krudmonk]

Why is the dot-com boom of the late '90s considered a benchmark? That's like the NHL striving to expand to 40 teams just because it's a high number. I hope the economy doesn't go back to "wacky" ideas that are sure to sell because they have websites.