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As Tech Companies Emigrate, Some Worry About S.F. Economy

63 percent of tech companies in San Francisco plan on reducing their office space even after the pandemic. A majority of those surveyed said the city’s regulations and taxes were influencing the decision.

(TNS) — The majority of San Francisco, Calif., tech companies are cutting their office space and will keep at least part of their workforce remote beyond the coronavirus pandemic, a dire sign for the local economy, according to a survey of 83 companies released Wednesday.

The survey was commissioned by, a tech trade group, which warned that a "breaking point" of tech departures and higher taxes could cripple the city's economy. Remote work has already sent shock waves through the real estate market, with 63 percent of the surveyed tech companies reducing or planning to reduce their office space. San Francisco's vacancy rate spiked to 16.7 percent at the end of last year, the highest level since 2005, according to brokerage Cushman & Wakefield.

"What the data makes abundantly clear is that tech companies and their employees are reducing their footprint in San Francisco, their departure does not bode well for San Francisco's economic future, and the industry trend toward decentralization is only going to accelerate after the pandemic ends," said Jennifer Stojkovic, executive director of, in a statement. The city is facing a $411 million budget deficit for the next fiscal year even after voters passed multiple tax increases last year.

Downtown and South of Market, once teeming with tech workers, are desolate and filled with boarded-up storefronts. The trend of tech workers leaving the region may accelerate: 55 percent of surveyed tech companies plan to keep at least a quarter of workers permanently remote, while 36 percent anticipate half or more of their workforce to stay remote. The majority of companies, 59 percent, said San Francisco regulations, taxes and policies are factoring into their growth plans. Companies surveyed include both private startups and large public companies, Stojkovic said. is calling for no more tax increases and more housing construction to keep living costs stable to help retain and attract tech companies, she added.

A separate survey of 90 tech founders by venture capital firm Initialized also showed widespread appetite for more dispersed workforces, a loss for Silicon Valley that could boost the economy of cities outside the Bay Area.

"Everyone is a lot more comfortable with hiring remote now, and it's very hard to put the genie back in the bottle there," said Kim-Mai Cutler, a partner at Initialized.

Neither survey is scientific, since both draw on a limited and voluntary pool of respondents and are backed by organizations with a direct interest in the topic, but they provide a window into the mood in the startup community.

Shaan Hathiramani, CEO of Flockjay, a San Francisco tech sales education company, said in the report that 90 percent of its workforce will become fully remote, up from 10 percent. That will allow better hiring opportunities, an upside that Facebook CEO Mark Zuckerberg has also highlighted in announcing a decision to let employees work remotely indefinitely.

"We will be able to hire a decentralized workforce with greater diversity of background, whether it be geography, gender, race, or capability," Zuckerberg said in a statement.

When the pandemic began and companies started going remote, many fled the Bay Area's high prices for less expensive nearby destinations such as Sacramento, Stockton and Fresno. Others left California for states including Texas and Florida, which have no income taxes. Silicon Valley powerhouses Oracle and Hewlett Packard Enterprise both said they would move their headquarters to Texas, though they will retain large Bay Area offices.

In the 2020 survey among companies in Initialized Capital's portfolio conducted before the pandemic, 41.6 percent of respondents said if they were to start a company today, it would be in the Bay Area. New York and Los Angeles were tied at 13.5 percent each, and Seattle at 10.1 percent.

The 2021 survey's respondents knocked the Bay Area out of first place, but not to another city. Rather, 42.1 percent said their company would be distributed or remote, with the Bay Area in second place at 28.4 percent.

Austin, Texas, and New York tied with 6.8 percent each, followed by 4.6 percent for cities outside the U.S. and 3.4 percent for Los Angeles. Miami, which has gained attention as a destination for fleeing Silicon Valley expats during the pandemic, received just 1.1 percent.

Still, tech companies expect the Bay Area to remain an epicenter for the industry, and the biggest firms including Google and Facebook are advancing huge office projects. Facebook and Apple both reported record quarterly profits on Wednesday, another sign that the Bay Area's dominant tech firms have been among the pandemic's biggest winners.

Brian Chesky, CEO of Airbnb, said last month that his newly public company is also committed.

"Airbnb is staying in California and I'm staying in California. This is a special place," he wrote on Twitter. "When I came to San Francisco, I was taken by the unique culture — people believed almost anything was possible, and they were willing to believe in a 26-year-old and his two friends with a crazy idea to let strangers live together."

In the report, board chairman Ron Conway, who invested in Airbnb and other startups, also called for startups to stay.

"I have always believed in San Francisco," he said. "That's why I'm calling on my fellow tech and business leaders to commit to staying in San Francisco and helping the city recover from the COVID-19 pandemic."

(c)2021 the San Francisco Chronicle. Distributed by Tribune Content Agency, LLC.

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