In 1986, city voters passed Proposition M, which limited how much office space could be built in the city. If you dig around searching for the reasons why, you’ll find people arguing that it somehow kept “speculators” in check. What it did, though, was help guarantee office owners high occupancies with little threat of competition.
Today in the wake of the Covid pandemic, the situation has changed. But at least the voters are consistent: They decided the city has too much office space and, in the March 5, 2024 election, passed Proposition C, which aims to make it easier to convert existing office buildings to residential use. It involves exempting such properties from the real estate transfer tax the first time it is converted to residential use, and it expands the cap on new office development to take into account the office space that has become residential.
In early April, real estate firm CBRE reported that at the end of the first quarter of 2024, San Francisco’s office market had an overall vacancy rate of 36.7 percent. You don’t have to look far to find business tenants that are downsizing or renegotiating their rents downward. If you’re an office speculator today, things are looking grim as the work-from-home trend has continued and San Francisco’s downtown has been a national laggard in recovery.
So if people don’t want to leave home and go downtown to work, why not live and work downtown? For owners — and those unpopular “speculators” — there must be hope that people will want to live downtown. If the conditions are right, clearly people do want to live in central business districts (CBDs). But only if the conditions are right.
In November 2023, the San Francisco Chronicle reported that downtown San Francisco had between 35,000 and 70,000 residents (depending on how you draw the boundaries). For comparison, downtown Chicago is said to have grown faster than any other U.S. city in the past three decades and was at 244,455 residents as of 2020, according to the Chicago Loop Alliance. Downtown Manhattan has a population of about 304,000 residents, but definitions kind of blur in New York.
If the conditions are right, clearly people do want to live in central business districts. But only if the conditions are right.
It’s incorrect, I know, but I tend to think of all of Manhattan as a downtown. It’s block after block after mile after mile of high-rise buildings filled with condominiums, apartments, offices, stores, movie theaters, music clubs, and more. What’s “downtown” and what’s just another high-rise neighborhood? When I lived there, I usually eschewed the subway and walked the four miles between my apartment and the publishing office where I worked. It was a pleasant walk. Even though my life might be pretty boring, I like living in a city with lots going on around me.
Back in the 1990s, a pessimistic real estate critic predicted that most city downtowns would fizzle out and die in ensuing years. Only, he predicted, cities with “24-hour downtowns” would see those CBDs thrive in the future. The problem, of course, is that there aren’t that many downtowns that have life in them 24 hours a day. Certainly Manhattan. Maybe Chicago. Definitely not Los Angeles. And what about San Francisco?
The key is that there need to be things going on around you, and people around you doing those things. To make downtown San Francisco even more tempting to more residents, people will need to be convinced that the streets are clean, it is safe to be walking about, drug dealers aren’t clogging up the streets, and public intoxication and drug use aren’t rampant.
If San Francisco makes the investments in creating a desirable downtown, I predict residents will come. Not everyone wants to live downtown, but many do, and it’s a long-term trend.
San Francisco wasn’t even included in a 1998 survey by The Brookings Institution Center on Urban and Metropolitan Policy and the Fannie Mae Foundation. The survey predicted huge growth in downtown populations in 24 U.S. cities between 1998 and 2010, ranging from a meager 1.5 percent increase in Los Angeles to a 303.3 percent increase in Houston.
Reports Brookings:
“A steady influx of new downtown residents can provide significant and lasting benefits for a city’s business center. Having residents in the business district eases rush-hour traffic jams by eliminating commutes or enabling reverse commutes. It creates a demand for a 24-hour city, with restaurants and stores open after 5 p.m., contributing to an active night life. Downtown residents demand better services and a diverse mix of retail, which benefit everyone who works, lives, and visits downtown.”
Which is to say that even if you personally don’t want to live downtown, you and your city will still benefit if more people do take up that lifestyle.
The same things that have contributed to a slowdown in single-family and condo sales — arguably chiefly relatively high interest rates — could have a negative effect on efforts to convert office buildings to residential housing in downtown San Francisco. Conversions take a lot of time and money, and the city’s notoriously change-resistant permitting and public approval processes could scare away potential, for lack of a better word, speculators willing to tackle these projects.
And Proposition C didn’t say anything about reducing the paperwork burden on conversions. Maybe that’ll come in another ballot measure in 40 years.
John Zipperer is the editor in chief of The Voice of San Francisco. john@thevoicesf.org
