Winter 2020/21

San Francisco

Presented by Beacon Economics

Welcome to The Regional Outlook, a forecast for five of California’s largest regional economies. Each quarter, find updated analysis that goes beyond the state and national level to present a snapshot of employment, home prices, consumer spending, personal income, and other leading economic indicators within key areas of the state. Visit your region of interest and subscribe for email delivery.

Winter 2020/21

Several months into the recovery, the San Francisco labor market has a considerable way to go before recovering from the historic job losses of April. Impacting more than just the labor market, the pandemic has led to an urban exodus that has hurt San Francisco’s apartment rental market.

SF Labor Market Recovery Still Has A Ways to Go

Nonfarm employment in San Francisco (MD) increased by 9,000 jobs in October, rising 0.9% from the previous month and marking a modest step in the region’s labor market recovery. The unemployment rate fell 1.1 percentage point to 6.9%, lower than the East Bay’s 8.3% and California’s 9.3% but higher than the South Bay’s 6.3%. Additionally, the unemployment rate in San Francisco remains well above the 2.0% estimate of a year ago. Stagnant from April to September, the region’s labor force increased by a sizable 31,000 in October, 12,000 shy of February’s pre-pandemic peak.

The Leisure and Hospitality Industry added 6,300 jobs from September to October. Accommodation and Food Services accounted for 85% of these. Professional, Scientific, and Technical Services added 3,100 jobs, which continued September’s strong gains. As the largest-employing industry, accounting for 18% of San Francisco’s employment base before the pandemic, this sector is among the most recovered in the region, trailing only the Finance and Insurance and Real Estate industries. The Retail Trade (1,200) and Other Services (1,000) sectors also added jobs in October. Education (-1,300 jobs), Logistics (-1,300), and Wholesale Trade (-800) had the largest month-over-month declines.

After losing steam in September, the labor market regained it in October. Even with 74,000 jobs added in the region since April, they account for only 38% of the jobs lost in the first two months of the pandemic. Unfortunately, COVID-19 cases are again surging across the state and region, and business reopenings have been halted or even rolled back. As a result, the 120,000 workers who have been unemployed since February will face additional challenges amid renewed pandemic countermeasures.

About a third of the jobs lost since the start of the pandemic have yet to be recovered, and the distribution of those jobs varies significantly by industry. Lower-paying industries, which include Accommodation and Food Services, Arts and Entertainment, Retail Trade, and Other Services, were hurt disproportionately as the pandemic began. These industries constituted nearly half of the region’s employment base before the pandemic and accounted for over 80% of the job losses in March and April. But following April’s historic employment decline, the recovery of lower-paying jobs outpaced that in higher-paying industries, increasing 18.2% from April to October compared with 1.6%.

San Francisco Apartment Market Records Largest Drop in Rents

In the San Francisco Peninsula, pandemic-related rent declines have been sharp and dramatic compared with those in the rest of the nation. The average rent per unit was $3,270 in September 2019, but a year later it had fallen 9.6% to $2,957. Across the peninsula, the largest declines were generally in the most expensive neighborhoods; SoMa, Central San Mateo, and the Marina/Pacific Heights area sustained drops of 15.8%, 11.7%, and 11.1% respectively. Contrary to news reports suggesting a surge in apartment vacancies, they rose just 0.6%, with the largest increases in the Civic Center/Downtown (2.0%), SoMa (1.4%), and Central San Mateo (0.7%) submarkets. Whether rents will continue to fall depends largely on whether tech employees embrace telecommuting after COVID-19 is controlled.

Housing market data tell a wildly different story. According to the California Association of Realtors, sales of existing homes in San Francisco increased 90.2% in September from a year earlier, a remarkable data point suggesting pent-up demand. The increase in sales corresponded with an increase in house prices, with the median price of existing family homes in September at $1.665 million, up 8.1% from last year. Interestingly, across the Bay Area, San Francisco County had the largest jump in home sales but the smallest increase in median price. At $1.773 million in September 2020, the median price of existing single-family homes in San Mateo County was up 20.9% from the same period a year earlier, the largest increase across the nine-county Bay Area region.

A slowdown in housing permits suggests that San Francisco will continue to face challenges in growing its supply. Only 2,043 multifamily housing permits had been filed through August, just over half of the 3,995 permits filed by the same point last year. Single-family permits showed a similar trend, with only 55 filed thus far in 2020 compared with 99 at this point in 2019. Additionally, only 648 apartment units were completed in San Francisco through September, a 41.8% decrease from the previous year and the lowest year-to-date number since 2012. With net absorption also in the negative thus far this year, all of these indicators point to a housing market in flux, trying to seek equilibrium under a temporary new normal.

Slowing economic growth, more rigid public health mandates, and fading support from the Federal stimulus present headwinds for San Francisco’s near-term recovery. But with the distribution of vaccines imminent, the outlook for 2021 is strong. Additionally, much has been made of telecommuting workers who have left San Francisco’s expensive housing and rental markets for cheaper locales, leading many to imagine a new landscape in which cities become diminished centers of economic activity as telecommuting workers seek cheaper housing in more remote locations. But if firms and workers considered only costs when they picked locations, they would not have chosen to locate in cities. This is because, despite the high costs of many cities, they generate great benefits for firms and workers. These advantages did not disappear with the advent of the telephone, fax machines, or email, and they will not disappear with better forms of videoconferencing. In short, speculation about the demise of urban centers is greatly exaggerated.

** The San Francisco MD includes San Francisco and San Mateo Counties. This is a change from previous editions of “The Regional Outlook San Francisco” when Marin County was also included.

More Information

For information about any of the Center’s research services, please contact:

Northern California Representative Mike Dozier at 424.372.1061 ext. 1006 or [email protected]

Managing Partner Sherif Hanna at 424.646.4656 or [email protected]