SF's AI boom can't stop real estate slide, as office vacancies reach new record
San Francisco’s office vacancy rate is hitting record highs despite a much-hyped AI boom, as remote work, long leases, and resistance to fully repricing commercial buildings keep the market in a prolonged correction. Commenters debate how to bet against commercial real estate financially, whether AI firms or outsourcing will meaningfully change office demand, and how issues like crime, homelessness, transit quality, and housing scarcity shape the city’s trajectory. Comparisons to places like Vancouver and New York highlight how different economic mixes, public transport investments, and urban form can lead to very different outcomes for downtown recovery.
Commercial Real Estate Bets & How to Short It
- Some commenters say pre-COVID bets against commercial real estate, driven by work-from-home (WFH) expectations, are paying off.
- Suggested retail strategies: shorting commercial REITs, buying put options, or using inverse ETFs, with caveats about risk, timing, and being “late” to the trade.
- Explanation of “long” vs “short” positions appears, including asymmetric risk: long can lose at most the investment, short can have theoretically unlimited losses.
Office Rents, Landlords, and Rent-Seeking
- Many feel SF office rents (e.g., ~$68/sqft/year) remain far too high despite rising vacancies.
- Descriptions of small, poor-quality spaces renting for thousands per month.
- Critique that “maximum sustainable rent” leads to “minimum sustainable product” for consumers; landlords are characterized as pure rent-seekers in some comments.
- Debate over what a “reasonable” rent (e.g., $10/sqft/year base + triple-net costs) should be and how much of it is simply “what the market will bear.”
AI Boom vs WFH and Office Demand
- Consensus that AI-related office leasing is marginal relative to the scale of the overall commercial market.
- Several note AI firms are few and VC-funded; they can’t offset broad pullbacks in space usage.
- WFH is seen as the major driver of vacancy, independent of whether AI “works.”
City Conditions, Crime, and Transit
- Strong criticism of SF’s livability: homelessness, open drug use, property crime (especially car break-ins), trash, and high commuting costs.
- Disagreement on how much these factors drive office vacancies: some argue they’re central; others point to cities like Vancouver with similar social issues but much lower office vacancy.
- Long, contentious subthread on crime policy: “broken windows” and stop-and-frisk are debated as effective but morally questionable vs necessary for safety.
- Transit: Muni seen as cheap but slow and sometimes unsafe; BART/Caltrain viewed as expensive commuters’ burden, with funding crises and safety concerns.
Urban Form, Housing, and Repurposing Offices
- Some argue dense downtowns are increasingly obsolete given remote work, logistics, and tech; advocate more dispersed, semi-autonomous communities.
- Others counter that density is environmentally and socially preferable to sprawl.
- Ideas include converting offices to housing or other non-traditional uses, though technical and economic challenges are acknowledged.
Office vs Home: Worker Preferences
- Managers and some developers value offices for collaboration, energy, and separation of space, especially with short commutes.
- Many coders prefer home for quiet and zero commute; some would require large salary premiums to return to offices full-time.