The $200 million per year cost of business exodus from San Francisco

  • San Francisco stands to lose hundreds of millions of dollars a year as big businesses leave the city, a analysis of official figures reveals.
  • Top companies such as Whole Foods and Nordstrom have closed flagship stores due to “unsafe conditions” downtown caused by crime and widespread drug use
  • City officials predict a budget deficit of $1.3 billion by 2028, including losses of up to $190 million per year caused by a decline in property tax revenue

San Francisco stands to lose hundreds of millions of dollars a year due to a business exodus triggered by crime, homelessness and the inability to bounce back from the Covid pandemic, a analysis of official figures shows.

Top retailers such as Nordstrom, H&M and Gap have pulled out of the city in recent months, and earlier this week the owner of two major hotels, including San Francisco’s largest, announced they would also leave the city.

Companies have blamed concerns for the safety of staff and customers in the “deteriorating” downtown district, where drug use and crime are rife.

The situation is reinforced by data which reveals that the number of pedestrians in the city’s difficult center is only 32 per cent of pre-covid levels. The public transport network is also on the brink of catastrophic failure as passenger numbers remain as dire, according to official forecasts.

Leaders estimate the situation will contribute to a $1.3 billion budget deficit in five years. The drop in property tax revenue alone could cost nearly $200 million per year, according to a worst-case scenario prepared by the city’s chief accounting officer.

An analysis of official figures and other research reveals San Francisco could lose hundreds of millions of dollars due to an exodus of businesses and its inability to recover from covid
San Francisco’s largest hotel, the Hilton Union Square
Park 55
Many businesses that have closed have cited concerns about the safety of staff and customers, including crime and public drug use. Pictured: Homeless people use drugs at a camp in the Tenderloin district downtown in February 2022

Park Hotels & Resorts announced Monday that it will default on a $725 million loan on the Hilton San Francisco Union Square – the city’s largest hotel – and Parc 55. The hotels have a combined 2,945 rooms, which make up nine percent of the city’s total.

A statement from Parks Chairman and CEO Thomas J. Baltimore said the city’s “road to recovery remains clouded and prolonged by major challenges,” including “record office vacancy rates, concerns over street conditions” [and] lower return to the office than peer cities.

The statement was a nod to the bleak homeless camps and open drug use prevalent in some areas. has repeatedly highlighted these grim hotspots and their devastating impact on communities.

Park’s decision was followed by news 30 more hotels also have loans due to their properties over the next two years.

It comes amid a retail crisis that intensified in May when Nordstrom announced the impending closure of its flagship store and Nordstrom Rack. In a statement, the company diplomatically referred to the “dramatically” changing “dynamics” of downtown San Francisco, “affecting customer traffic … and our ability to operate successfully”.

Nordstrom said it will close the luxury department store and Nordstrom Rack. The company diplomatically referred to the ‘dramatically’ changed ‘dynamics’ in the centre. Westfield, where the store was based, blamed “unsafe conditions for customers, retailers and staff”
Several of the stores that have closed cited safety concerns as downtown San Francisco is ravaged by homelessness and drug use
Cameras are set up around the city and people take drugs openly. Pictured: Homeless tents are seen in the Tenderloin District during heavy rain in San Francisco on January 11, 2023

Westfield, which runs the mall where Nordstrom was based, was less delicate in its assessment. It blamed “the deteriorating situation in downtown San Francisco” and “unsafe conditions for customers, retailers and employees”.

H&M closed its flagship store in 2020 and the lease for the Westfield property expires in January.

A damning report published in May said 95 retailers in the city center have closed since the start of the Covid pandemic. The departing business includes coveted brands Lululemon, Ray Ban to Christian Louboutin.

Whole Foods also closed its flagship store in Trinity Place in April, just 12 months after its grand opening, with an announcement saying it would only reopen “if we feel we can ensure the safety of our team members”. The closure followed several incidents, including the overdose death of a 30-year-old man in the toilet in September 2022.

As stores have closed, downtown San Francisco pedestrian traffic has also failed to return to anything close to pre-Covid levels.

Activity in downtown San Francisco is just 32 percent of pre-Covid levels, according to research from the University of Toronto’s School of the City, which analyzed mobile device activity. San Francisco came in at the bottom of a table of 63 cities across the United States used in the study.

Ridership of the Bay Area Rapid Transit, which serves San Francisco, Alameda and Contra Costa, is also at just 34 percent of pre-Covid levels, according to official figures published in May.

As retailers flee and people stay away, office building vacancy rates have also hit unprecedented highs. Vacancy in May was 31 percent — equivalent to 18.4 million square feet, or enough space for 92,000 workers, according to an analysis of Lee & Associates data by the San Francisco Chronicle.

In April, Salesforce said it would vacate its eponymous 30-story Salesforce East building downtown, where about 1,000 employees had worked before the pandemic
Tourism regularly recovers to its pre-covid heights, according to figures from the San Francisco Travel Association

San Francisco is home to Silicon Valley and the job market is heavily weighted towards technology and services. Many employees in the sectors continue to work from home.

Many major tech companies based in San Francisco – including Meta, Google, Salesforce and Twitter – have also shed tens of thousands of jobs in recent months as the industry suffered a post-Covid downturn.

San Francisco Mayor London Breed has proposed a record budget despite the city facing a $1.3 billion deficit by 2028

In April, Salesforce said it would vacate its eponymous 30-story Salesforce East building downtown, where about 1,000 employees had worked before the pandemic.

City officials launched a $6 million ad campaign in May to lure back tourists. Visitor numbers have improved since covid and in 2022 was around 16 per cent lower than the record 26.2 million in 2019.

The international campaign included a commercial featuring a variety of local talent, including Lady Camden, a drag queen who rose to fame on “RuPaul’s Drag Race,” and local muralist Sirron Norris.

Meanwhile, tax receipts for the city of San Francisco are suffering.

The revenue loss for the city caused by reduced property taxes could reach $196 million per year by 2028, according to modeling published in November by the San Francisco Controller’s Office.

The best scenario from the modeling expects the costs to be closer to 100 million dollars per year.

That will contribute in part to a $1.3 billion budget deficit by 2028, according to projections from the Controller’s Office. A report published in March cited “lower revenue forecasts” as a factor.

Despite the worrying finances of the city, San Francisco Mayor London Breed has proposed a record budget of $14.6 billion for the next two years.

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