The push to get workers to ditch their pandemic-era flexibility and return to the office has gained momentum across the country, and San Francisco Federal Reserve President Mary Daly is urging employers to do more because she said in-person attendance is crucial to aiding the economic recovery of major cities.
Daly, the president and CEO of one of the country's largest federal reserve banks, said that while hybrid work has become a permanent fixture in workplace culture, office use rates in San Francisco and other major metropolitan areas need a hefty boost.
"For founders and developers and business owners and CEOs, bring your people back to work," Daly told attendees at an event hosted by the Commonwealth Club of California, a public affairs forum. "This city will not change unless we change the city."
The comments come as San Francisco, one of the markets most heavily battered by the effects of the pandemic, struggles with a historically high vacancy rate, a sluggish return-to-office shift and several years' of emptied space that accumulated as companies either scaled back or offloaded their leases. The city's office vacancy rate — the highest in the country — has climbed to nearly 24%, according to CoStar data.
Tenants in the downtown area have collectively handed back almost 2 million square feet more than they signed for over the past year, according to CoStar, not accounting for the roughly 3 million square feet of available sublease space that has yet to be filled.
What's more, office attendance in the city is less than half of what it was prior to 2020, according to data tracked by security technology company Kastle Systems.
Yet there are a number of brightening spots that indicate the city is on the cusp of a turnaround. Leasing activity is ticking upward, and AI companies such as OpenAI, Anthropic and Scale AI have signed some of the city's largest office deals since the onset of the pandemic in 2020. Fewer tenants are deciding to dump their office spaces, according to a CoStar analysis, and the decline in rents over the past several years is beginning to slow.
Beyond the office market, Daly pointed to improved transit ridership, the city's tourism comeback and the greater Bay Area's pool of some of the most powerful companies in the world. The region is also home to the headquarters of the "Magnificent Seven," or the seven market-leading stocks, including AI chipmaker Nvidia, Google parent company Alphabet and social media platform Meta, among others.
All of that is contributing to a shift Daly said would only gain speed if more people would commute to an office.
“I’m a big champion of hybrid work, but I also think about the younger generation," Daly said. "I think of how many benefits I received by sitting next to people who knew a lot more than me about that particular thing, and how I can develop my career. Zoom is not a replacement for in-person contact for those individuals.”