Bay Area:
Outmigration and Vacancies Impacting Economic Recovery
As the Bay Area’s economy recovers, it’s residential and commercial real estate markets continue feeling the bifurcated impact of the COVID-19 pandemic: high demand for suburban homes, declining demand for downtown office space and apartments, and the potential for more residents migrating out of city centers.
That’s according to the most recent forecast and trends presented by UC Berkeley, the Bay Area Council Economic Institute, Indeed Hiring Lab, and Caltrans. These experts’ opinions spotlight intriguing viewpoints and projections so your credit union can plan appropriately.
UC Berkeley
Presented on Feb. 5 by the Fisher Center for Real Estate and Urban Economics (under the university’s Haas School of Economic Analysis and Policy), and hosted by the San Francisco Business Times’ “2021 Mayors’ Economic Forecast”:
The Bay Area’s economy will experience a dramatic rise in economic growth in 2021, but it will under-pace both California and U.S. growth. It will probably also take place more in the second half of this year than the first half. That’s because the local region has fallen into a deeper economic hole during the pandemic recession in springtime of 2020 that it has to climb out of, in addition to restrictive local and state social distancing and business/commerce policies. U.S. economic growth is expected to rise 6 percent in 2021 (gross domestic product or GDP), with California’s own “state GDP” expected to come in below that mark (3.5 – 5 percent) and the Bay Area potentially even lower (2.5 – 4 percent). This means employment growth (or decreasing unemployment) will lag in the region compared to other areas of California.
The Bay Area’s lack of job growth from December 2019 to December 2020 will impact its economic recovery in 2021. Annual job growth (or lack thereof) during this period was -128,000 in San Francisco, -113,000 in the Oakland region, and -79,000 in the San Jose area (the first two ranking nearly the worst across 26 metro vicinities across the nation — with only Detroit and New York doing worse off). For the Bay Area, this is a -7 to -10 percent negative annualized drop in job growth depending on where one lives in that region (unlike the -1 to -5 percent range experienced in Austin, Dallas, Phoenix, Atlanta, Tampa, Denver, Houston, Washington D.C., and Miami). The U.S. average was about -6.2 percent (or -9,400 jobs on average per metro region) as of December 2020, displaying the Bay Area’s far off spot on the spectrum.
What’s made the Bay Area’s location and business dynamics “great” in the past has been its continual downfall during the COVID-19 pandemic. The lack of “economic recovery” job growth over the past 8 – 10 months is not just due to state and local social distancing restrictions. The region is also a global gateway city that’s very dependent on tourism, business travel, and business conventions. The lack of business activity in these spheres is also contributing to the region’s lagging job creation as it tries to recover in tandem with the entire state of California but continues falling severely behind.
Total Bay Area employment in higher-wage industries has more than surpassed its pre-pandemic level while lower-wage jobs have only recovered approximately 50 percent. Those higher-wage jobs include industries such as technology, software, e-commerce retail, life sciences, residential real estate, and remodeling and construction. The lower-wage jobs are those in the travel, entertainment, hospitality, and food services/accommodation industries. Are societal and consumer adaptations to the COVID-19 pandemic temporary or permanent? And how will the continuing pandemic and variety of local/statewide restrictions affect how local residents live, work, shop, travel, and seek entertainment going forward? Will some relocate to the suburbs or out of state? Will some want to keep their work-from-home status? Will some travel much less? These are questions to ponder as local business leaders continually assess quarterly economic growth and residential/commercial demand for real estate.
The Bay Area’s job market recovery during the COVID-19 pandemic stands in contrast to the recoveries of the prior three economic recessions over the past 30 years. It’s been nearly 12 months since the pandemic plunged the nation into an extremely deep (yet short) three-month recession from February – April of 2020; yet the Bay Area economy is still approximately -10 percent down in total employment from its pre-pandemic level. In comparison (and looking at the same region), the 2001 recession hovered between a -8 to -14 percent drop from employment, eventually fully recovering in 163 months (not the worst depth, but the worst in duration). The 2008 recession hovered between -4 to -7 percent below its pre-recession level, eventually fully recovering in 73 months. And the 1990 recession hovered between -2 to -4 percent, eventually fully recovering in 47 months.
San Francisco has three employment sectors that are the worst performing with respect to still being below their pre-pandemic levels as of December 2020. Year-over-year data shows leisure/hospitality is down -37 percent, “other” services is down -16 percent, and transportation/utilities is down -15 percent. The best performing sectors are financial activities (2 percent growth) and professional/business services (-1 percent). Those in the middle are construction (-8 percent), educational/health services (-6 percent), state and local government (-9 percent), information technology services (-9 percent), manufacturing (-7 percent), and trade (-10 percent).
The difficult economic recovery coming out of 2020’s springtime recession accelerated a trend of residents migrating out of San Francisco — something that had already been happening for a few years. It’s estimated the city will experience net-negative outmigration of up to -73,000 people in 2020 (numbers still being finalized), which eclipses other high-mark years (-26,000 in 2002, -20,000 in 2003, and -17,000 in 2004). After seeing total/combined in-migration of 125,000 new residents from 2007 – 2016, it was 2017 that marked the first year in a while that San Francisco started experiencing today’s current negative outmigration shift (unseen since the 2001 – 2006 period, which also represented a booming real estate market). Is this a temporary trend, or has the COVID-19 pandemic kickstarted the very beginning of even more outmigration? It’s a question to keep an eye on.
Annualized job growth was -113,000 as of December 2020 in the East Bay region, which surpassed every other recession over the past 30 years. Negative year-over-year job growth in the same month was -54,000 in 2009, -37,000 in 2008, -21,000 in 2001, and -13,000 in 1991. East Bay has three employment sectors that are the worst performing with respect to still being below their pre-pandemic levels as of December 2020. Year-over-year data shows leisure/hospitality is down -31 percent, “other” services is down -19 percent, and manufacturing is down -13 percent. The best performing sectors are transportation/utilities (3 percent growth) and financial activities (0 percent change). Those in the middle are construction (-8 percent), educational/health services (-7 percent), state and local government (-10 percent), information technology services (-5 percent), professional/business services (-4 percent), and trade (-7 percent).
Alameda County is experiencing its own outmigration trend as well — for many of the same reasons as San Francisco, but also business related (higher costs). It’s estimated the county will experience net-negative outmigration of up to -7,000 people in 2020 (numbers still being finalized). After seeing in-migration of 78,000 from 2010 – 2016, it was 2017 which marked the first year in a while that the county started experiencing this negative outmigration shift (unseen since 2009 and before). Whether this pre-pandemic trend that was accelerated by COVID-19 will continue remains to be seen.
San Francisco ranks No. 3 in its homeless population among the top-10 largest homeless metropolises in the nation — not far behind Washington, D.C. (No. 2) and New York (No. 1). San Francisco now has 91 homeless residents out of every 10,000 residents (the other two cities have about 94 per 10,000). The U.S. average is 17 per 10,000 residents. This local issue encompasses not just housing, but mental illness and drug usage.
Oakland ranks No. 1 in its viloent crime among the top-10 large metropolises in the nation with high crime rates. Oakland experienced 13 violent crimes per 1,000 residents in 2019, and San Francisco ranked No. 5 (having seven violent crimes per 1,000 residents). San Francisco burglaries increased 47 percent in 2020, and gunshot incidents were up 32 percent that year too. Meanwhile, Oakland homicides are already soaring as 2021 kicks off. The East Bay region risks having even more residents migrate out if its crime problems aren’t tamped down in the coming years.
San Francisco’s multi-family building permits for apartments and condominiums soared from 2012 – 2019, but that’s changing fast. Nearly 40,000 of these permits were pulled from 2012 – 2019, averaging about 5,000 per year (much higher than the average 2,900 per year from 1997 – 2008). Today’s high cost of construction and development — coupled with declining apartment and condo rents that commercial real estate investors and landlords are facing — are poised to put a damper on multi-family building in the city for the foreseeable future.
The apartment vacancy rate in San Francisco has soared to its highest rate in modern history — 11 percent. It’s most recent low was 3.7 percent in 2016. In the short-run, there’s a lot of empty apartment space sitting vacant in the city. Meanwhile, the average monthly apartment rent in the city is also plunging (-15 percent from January 2020 to January 2021). It hit a peak of $3,200 in 2019 (rising from $1,700 in 2010). Today the average rent is $2,750 (not seen since 2015) and is poised to continue falling over the coming year. This has made the city more affordable, but it means new construction of apartments is nearly coming to a halt and many current landlords are getting financially squeezed.
The median price of an existing home in San Francisco has risen an average 10.4 percent every year from 2012 to 2020, but time will tell how long this lasts in a possible rising interest rate environment going forward. With intermittent historically low mortgage interest rates over the past eight years, suburban home prices continue skyrocketing. Today, with COVID-19 in play, San Francisco-area homebuyers want extra space because many are working fully remote and their children are home from onsite school during the pandemic. In fact, there are only five years between 1995 – 2020 when the median home price dropped: -1 percent in 1996; -3 percent in 2002; -24 percent in 2009; -2 percent in 2011; and -6 percent in 2012.
The East Bay region’s multi-family building permits for apartments and condominiums soared from 2016 – 2020, but that’s changing fast. More than 29,000 of these permits were pulled from 2016 – 2020, averaging nearly 6,000 per year (much higher than the average 2,400 per year from 1995 – 2015). Today’s high cost of construction and development — coupled with declining apartment and condo rents that commercial real estate investors and landlords are facing — are poised to put a damper on multi-family building in the region for the foreseeable future.
The apartment vacancy rate in the East Bay region has soared to its highest rate in modern history — 8.3 percent. It’s most recent low was 2.9 percent in 2016. In the short-run, there’s a lot of empty apartment space just sitting in the region. Meanwhile, the average monthly apartment rent in the region is also plunging (-8 percent from January 2020 to January 2021). It hit a peak of $3,000 in 2019 (rising from $1,400 in 2011). Today the average rent is $2,700 (not seen since 2018) and is poised to continue falling over the coming year. However, the drop in rent in the East Bay region (-8 percent) versus San Francisco (-15 percent) is notable and shows the desirability of more space and cost-effective rents in the East Bay region, comparatively speaking.
The median price of an existing home in Alameda County has risen an average 11.8 percent every year from 2012 to 2020, but time will tell how long this lasts in a possible rising interest rate environment going forwad. With intermittent historically low mortgage interest rates over the past eight years, suburban home prices continue skyrocketing. Today, with COVID-19 in play, Alameda County-area homebuyers want extra space because many are working fully remote and their children are home from onsite school during the pandemic. There were seven years between 1995 – 2020 when the median home price dropped: -2 percent in 1996; -4 percent in 2002; -1 percent in 2007; -6 percent in 2008; -40 percent in 2009; -7 percent in 2012; and -1.5 percent in 2018.
Will remote workers want to come back to their office buildings in central business districts around the Bay Area once the COVID-19 pandemic settles down? According to a recent survey, 44 percent say they don’t want to work any days (per week) from home; 26 percent want to work 1 – 2 days per week from home; 18 percent want 3 – 4 days from home; and 12 percent want five days from home (the pro-work remote answers combined are a majority 56 percent). However, empircal guesses regaridng reasons that the 44 percent of respondents gave with respect to returning to the office include casual work interaction, colleague coordination, collaboration, creativity, career guidance, mentoring and face-time, and control of managing and projects. Furthermore, San Francisco is at the bottom of the top-10 metropolitan list of cities with its share of officeworkers back in the office (only 12 percent back in the office in San Francisco and 14 percent in San Jose versus a range of 15 – 37 percent for the other eight large cities across the nation).
Office leasing activity in downtown San Francisco has plunged -71 percent from 2019 to 2020 (compared to -32 percent from 2007 to 2008 during the Great Recession). Many downtown companies still don’t know how large of an office footprint they need going into the next few years, and some are even exiting the region or the state and relocating elsewhere. Meanwhile, available sub-lease space has skyrocketed in 2020 as firms with master-lease agreements try to make up for their master-lease costs through sub-renting to others — rising 587 percent in San Francisco, 38 percent in Silicon Valley, 49 percent in the East Bay, and 54 percent in the Bay Area peninsula region. Sub-lease space is going for approximately half the price of traditional lease space (with the local traditional-lease price dropping from $86 per square foot in downtown San Francisco in 2019 to $77 in 2020).
New office construction in San Francisco is slowing down and coming to a halt soon, due to vacancy shooting up. For context, new office construction in downtown San Francisco experienced an upswing in 2019 and 2020 — 3 million new square feet, with recent prior years being hit-and-miss (zero square feet completed in 2018; 900,000 in 2017; zero in 2016; 600,000 in 2015; and zero from 2010 to 2014). The last downtown office building boom was between 2000 – 2004 (and zero space completed from 1993 – 1999). However, much larger completions were accomplished from 1980 – 1992 (about 19 million square feet constructed over those 13 years). In downtown Oakland, 1.6 million square feet of office space (out of 2.44 million from 2001 to 2020) was constructed in just the last two years. However, the Oakland office vacancy rate has increased from 12 percent in 2019 to 18 percent in 2020 (hasn’t been that high since sometime before 2001) due to the huge surge in sub-lease space on the regional market.
The turmoil in the Oakland office-space market hasn’t been reflected in rents just yet. A normal square foot went for approximately $53.50 in 2019 and $52.40 in 2020. However, the overwhelming amount of sub-lease space in both Oakland and San Francisco is expected to make these rates dramatically fall in 2021.
You can view the entire forecast video. Make sure to click here to see the archived presentation (“The Outlook for the San Francisco/Oakland Economies and Real Estate Market in 2021” at the 23:30-minute mark).
Bay Area Council Economic Institute
Released intermittently through late 2020 and early 2021:
Read about some of the Bay Area’s most recent economic trends for context as the region heads into 2021:
- Click here to see “The Impact of COVID-19 on the Regional Labor Force,” including disruption of labor force participation, regressive impacts on female participation, lowest wage industries sustaining the most and deepest job losses, and participation by educational attainment.
- Click here to see the “Bay Area Economic Recovery Tracker,” including monthly changes in employment relative to January 2020, unemployment, jobs recovery compared to past recessions, other historical comparisons, industries with the most job losses, and employment sector/job breakdowns over time.
- Click here to see the ongoing “Economic Profile,” including lasting impacts from the COVID-19 recession in 2020 on the regional economy, venture capital, innovation, housing, transportation, higher education, globalization/localization, income inequality, migration trends, and labor force participation.
- Click here to see “Recent Publications,” including trends in transportation, economic mobility, housing, jobs, and more.
You can also view “Stop Blaming Tech — The Real Reasons for the California Exodus”: Make sure to click here for a conversation between Bay Area Council Economic Institute CEO Jim Wunderman and San Jose Mayor Sam Liccardo to talk about a powerful commentary he recently penned for the San Francisco Chronicle that “rejects the blame game.”
Indeed Hiring Lab’s Bay Area Trends (Indeed.com)
Released on Feb. 2 (“The Impact of Coronavirus on U.S. Job Postings”):
U.S. job postings (advertisements for jobs) since the COVID-19 pandemic recession in spring of 2020 are down the most in the greater San Jose, San Francisco, and Honolulu regions. However, job postings have improved significantly since the end of September 2020 in nearly all of the hardest-hit metros. Since February 2020, Honolulu (No.1) has experienced a -25 percent drop in job postings; the San Jose-Sunnyvale-Santa Clara region has seen a -23 percent decrease; and the San Francisco-Oakland-Berkeley area has fallen -22 percent. However, since September 2020 those same regions (respectively) have seen increases in job postings of 9.5 percent, 9 percent, and 11 percent.
Job postings (advertisements for jobs) have rebounded more slowly in metros where a higher share of jobs can be accomplished from home (such as the Bay Area). In high work-from-home metros, postings in retail, restaurant, and personal-services jobs have suffered. Collectively, postings in these metros across the United States are still 13 percent below the pre-pandemic baseline (recovery is slow). On the flipside, metros across the nation with a higher share of in-person service jobs (leisure, hospitality, food accommodation, etc.) are seeing (collectively) their job postings recently hit their pre-pandemic levels since their economies are more dependent on them (and other reasons too).
The COVID-19 pandemic recession from 2020 has especially been a “big-city recession,” especially for regions like the Bay Area. Job postings (advertisements for jobs) remain below baseline in larger (and the largest) metropolitan regions (approximately -10 percent below February 2020 for areas with 2 – 5 million residents). But they are above baseline in medium areas (5 percent above pre-pandemic level for areas with 500,000 – 2 million residents) and small areas (9 percent above pre-pandemic level for areas with less than 500,000 residents).
Caltrans’ County-Level Economic Forecast
Released in December 2020 by Caltrans (the California Department of Transportation):
You can view Caltrans’ economic, demographic, housing, population, job, inflation, and industry breakdown forecasts for each county. Click on the following to view local trends and projections from 2021 – 2025: San Francisco, San Mateo, Santa Clara, Alameda, Contra Costa, Solano, Napa, Sonoma, and Marin. Or you can click here to view any county in California.
Bay Area Small Business Activity
Updated routinely by Homebase, a provider of real-time digital tools for small businesses:
Small business activity across the Bay Area was down at varying amounts compared to pre-COVID levels as of mid-December 2020. In the greater San Francisco area, activity was down -30 to -39 percent depending on the measurement analyzed. In the greater San Jose region, activity was down -24 to -25 percent. Both regions were down between -56 to -74 percent in April 2020 before starting to recover. Measurements include the volume of hours worked by employees, the number of businesses open, and the number of employees actually working. You can click here to learn more and pick your region.
Bay Area: Demographics, Labor, Education & Economic Resources
- Data USA’s county profiles: San Francisco, San Mateo, Santa Clara, Alameda, Contra Costa, Solano, Napa, Sonoma, and Marin
- California Center for Jobs and the Economy (search by county)
- California Employment Development Department’s (EDD) Labor Market Information Division
- California Department of Finance's Economic Research Unit
- California Department of Finance's Demographic Research Unit
- Economic Research Division of the Federal Reserve Bank of San Francisco
- Bureau of Economic Analysis (U.S. Department of Commerce)
- U.S. Census Bureau's Business and Economy Division