San Francisco’s burgeoning economy makes it a global contender
San Francisco is in the forefront of four new economic models shaping the way the most competitive cities adapt to business innovation
Unlike Marlon Brando’s Terry Malloy (‘On the Waterfront’), who “coulda been a contender,” San Francisco is already there.
A new report by JLL, Demand and Disruption in Global Cities touts four new economic models shaping the way the most competitive cities adapt to business innovation.
Take a look at each model and you’ll see that San Francisco is at the forefront of all of them, and that’s possibly one reason why the city is now ranked just below the ‘Big Seven’ global cities: London, New York, Paris, Singapore, Tokyo, Seoul and Hong Kong. San Francisco is boxing well above its weight, and with a population of less than 900,000, it accounted for 9% of total venture capital spending worldwide. Meanwhile, London has 10 times the population (approximately 8.9 million in 2018) yet accounted for less than 1% of total venture capital (VC) spending worldwide or roughly 10% of the VC spending in San Francisco last year.
San Francisco is only 47 square miles but contributes over $154 billion to the nation’s GDP. That’s over $5 million in economic activity per acre. Compare the economic activity of New York which has over $690 billion in economic activity, but New York produces less than two-thirds the economic activity as San Francisco on a per acre basis.
Implications for Cities and Real Estate
Here are the four new economic models, based on the report:
- Increases demand for flexibility (i.e. flex space and short-term leases)
- Optimizes space utilization and breaks down barriers between building uses
- Renews focus on ‘the district’ as the venue that fosters collaboration, innovation, clustering and commercialization
- Builds appetite for pro-densification and pro-talent retention policies
- Heightens customer expectations for on-demand services and unique personalized content
- Enables customized experiences facilitated by data collection and curated through outstanding design
- Fosters concentration of mix of activities in high-experience locations
- Focuses attention on good ‘whole of place’ governance to ensure integrated experience
- Promotes rise of new living and working patterns, including co-working and co-living.
- Raises demand for spaces that are easily reconfigurable for fast-moving tenants.
- Increases returns from effective space and asset utilization.
- Facilitates operational efficiencies and digitally-enabled experience.
- Boosts building sustainability, energy savings, and better water and waste management.
- Enables higher density through shared occupancy, urban regeneration, extended lifespan and usability of assets.
- Creates opportunity for cities to develop a leadership position through better procurement practices, planning regulations, partnership promotion and standards setting.
Of course, this isn’t a surprise to San Franciscans. After all, the city by the bay almost became the “world’s capital” in the late 1940s, losing out at the last minute to New York City.
San Francisco leads the peloton
San Francisco also leads several of the global contenders, including Boston, Chicago, Shanghai, Berlin, Stockholm and Toronto, that are outperforming established world cities, like London, in several key areas. As of 2017, San Francisco had reduced its total greenhouse gas emissions by 36% from 1990 levels despite the population increasing by 22% and GDP increasing by 166% over the same period.
You only have to take a cursory look at the Bay Area’s commercial office market to see that talent attraction and retention are key considerations for the growing number of companies calling the city — and region — home. Technology firms, in particular, continue to lease large swaths of space in San Francisco. From 2010 to October 2019, San Francisco technology tenants leased over 10 million square feet. This includes major sharing economy enablers that are headquartered in San Francisco such as Airbnb, Uber Technologies, and Lyft. This economic activity grew in tandem with a considerable reduction in GHG emissions in the building sector which has reduced its total annual carbon footprint by 39% over the same period.
Some office developments have secured pre-leasing commitments years in advance of physical occupancy in order for those companies to lock-down space allowing them to compete for talent and aid future growth. Salesforce pre-leased 731,000 square feet in the Transbay District and Pinterest pre-leased 300,000 square feet for a project that was yet to be entitled.
World class vision
Similarly, San Francisco has always been a regional and national leader in sustainability and the environment. San Francisco is projected to grow another 8% from 2019 to 2025 and will reach more than a million residents before 2030. Despite the population growth, the City of San Francisco is ahead of their 2020 GHG reduction goals of 40% below 1990 levels and plan to achieve an 80% reduction in GHG emissions by 2050 with strong goals in energy efficiency, waste reduction and biodiversity. Meanwhile, the SF Planning Department, through visionary projects such as the Central SOMA Plan, is instilling sustainability into large scale neighborhood development and regeneration. These include considerable affordable housing, community retail, open space, and multimodal transportation plans that provide both inclusion and low carbon mobility options.
Even affordability is a relative matter. San Francisco home prices, apartment rents, and even commercial office rents have grown significantly in this cycle. But relative to the ‘Big Seven’ the Bay Area still provides value for money in most every category.
Our city ranks closely behind Hong Kong in the JLL | The Business of Cities 2019 report. San Francisco is still firmly focused on expanding its innovation, experience, sharing and circular economies while several Big Seven cities continue to wrestle with the distraction of all-consuming political upheaval (Brexit, Hong Kong). It’s entirely possible that San Francisco is set to move into the Big Seven (or create a Big Eight) sooner rather than later.