San Francisco emerges from the shadow of a doom loop

Crime rates have dropped to their lowest levels in decades and continue to fall, with burglaries, a particular nuisance to homeowners and tourists, down 28% this year. The homeless tent encampments that block sidewalks and bedevil retail businesses have shrunk, while foot traffic and transit ridership have risen.

Rents overall are up 12% year over year in the city proper, with September marking the 13th month in a row of consecutive growth, according to Apartments.com. And the hotel industry is showing signs of recovery.

On a recent sunny October Friday—everyone’s favorite day to work from home—dozens of workers typed away on laptops around Salesforce Park and tourists walked its leafy paths. Restaurants hummed with more than half of their tables full, many taken up by people in the San Francisco work uniform: a button-down shirt and a puffer vest.

The artificial-intelligence boom has prompted many firms to expand their real-estate footprints. Institutional investors have been buying up buildings at a discount, betting demand for office space will rebound. And increasingly stringent return-to-work policies have brought more foot traffic to the city’s business districts.

The developments mark a turnaround for a city that gained national notoriety a few years ago for shattered storefronts and smashed car windows. Conventioneers demanded a stronger law-enforcement presence, and residents elected a moderate mayor who vowed to beef up the police.

Private investment in the city is now starting to follow. Salesforce, which refers to itself as the city’s largest private employer, last week announced a $15 billion investment over the next five years in a new “AI incubator hub," workforce-development programs and other AI-related initiatives in the city.

Likewise, Databricks, a data-analytics software company, announced in the spring it would open a new 150,000-square-foot headquarters downtown and intends to double its employee head count in the city over the next two years. And OpenAI in March opened a new headquarters in Mission Bay.

“The sentiment is back. The willingness to invest is back," says Ted Egan, the city’s chief economist.

Keba Konte, founder of Red Bay Coffee in Oakland, was initially hesitant to open a new shop in downtown San Francisco last fall. His wholesale business suffered during the pandemic when offices weren’t placing orders and a Civic Center retail location he opened in 2021 didn’t last even a year.

He decided to move ahead, however, after landing a lease-sharing agreement with Yes SF, a foundation through the San Francisco Chamber of Commerce focused on revitalizing downtown. Permitting changes allowed for the foundation to run an event space in the back that Konte’s customers also can use to do work and meet with colleagues.

Sales are up 20% since the shop opened, which Konte attributes to the city’s rebound and more people working from the office. “It was a fantastic decision," he says.

Comeback story

For decades, the city thrummed thanks to the burgeoning tech industry and became a plush playground for its ever-increasing number of workers. Buses shuttled them from the city to the Silicon Valley campuses of Apple, Google and Meta. Then the pandemic struck, triggering remote work.

Many residents decamped for suburbs and less expensive locales. San Francisco’s office-vacancy rate soared to the highest in the U.S., and small businesses closed with fewer people going to work. Burglaries climbed to their highest levels since the 1990s. Residents complained of homelessness and open drug use. Retailers like Nordstrom and Banana Republic left downtown.

Around the same time, the tech industry started doubling down on AI. The fruits of that investment are a big factor in San Francisco’s current rebound.

The number of young people moving into the city is ticking up slightly, says San Francisco Planning Director Sarah Dennis Phillips, after the city lost more than a quarter of its 20- to 29-year-old population from 2019 to 2023, the largest decline of any age group.

Katie Treene, 24, who works for a renewable-energy company and lives in San Francisco’s upscale Russian Hill neighborhood, always thought she would land on the East Coast after graduation. But she was drawn to San Francisco for the outdoorsy lifestyle and has been pleasantly surprised by both the social scene and how safe she feels.

Treene pushes back when people from the East Coast and South question her decision to live in the city. She can swim at Aquatic Park, hike in the Marin Headlands and take advantage of the many events taking place around the city, she tells them. Among fellow young people, she says, San Francisco offers much more to focus on than just drinking.

“They have soccer games the next morning," Treene says. “A lot of people get up early on the weekends."

Young founders and AI workers, lured by the promise of being part of what they see as a technological revolution, are dropping out of college and moving to neighborhoods like the Mission and the once-industrial but now chic Dogpatch. A former shipbuilding hub, more of Dogpatch’s factories now house art galleries, cafes and loft apartments.

AI companies, flush with cash, have been scooping up high-quality office space in the city. The firms account for a quarter of all the demand in the city real-estate market, says Colin Yasukochi, executive director of CBRE’s Tech Insights Center. They took on nearly 1 million square feet of office space in the first half of this year.

“Mayors always tell me they would die to have one of these companies, and we have dozens and dozens," says Daniel Lurie, San Francisco’s first-term mayor, rattling off buzzy startups like OpenAI and Anthropic.

Some residents and business people also credit Lurie’s addition of treatment facilities for drug users and increased police presence in tourist areas, and the tougher-on-crime approach of District Attorney Brooke Jenkins, whose predecessor was recalled after de-emphasizing the prosecution of low-level offenses.

Foot traffic from city visitors and ridership on the local transit system, Bay Area Rapid Transit or BART, have been rising, while the city counts 168 homeless tents and structures, down from 242 a year ago.

‘Work to do’

The city still has sore spots. Salesforce Chief Executive Marc Benioff told the New York Times recently that he would welcome National Guard troops in the city to help reduce crime. He later apologized for his comments.

Lack of growth among non-AI companies has contributed to the slow decline in San Francisco’s office-vacancy rate, which peaked at 36.9% last year and had fallen to around 34.4% in the most recent quarter, according to real-estate services firm CBRE Group. San Francisco’s office-vacancy rate is still well above prepandemic levels and its largest mall remains mostly a ghost town.

There is also a flip side to the city’s rebound. Hefty monthly rents, which dipped during the pandemic, have returned to levels that are even more out of reach for many families.

The AI gold rush, though it has fueled a lot of San Francisco’s revival, hasn’t provided the number of jobs that previous tech booms have furnished. Citing advancements in coding tools and productivity increases, Benioff told analysts and investors in February that Salesforce wouldn’t be hiring any new engineers this year.

“I don’t want to sit here and just say everything is perfect, it’s not. We have work to do," says Lurie, the mayor. The city must keep tackling drug use and address a shortage of affordable housing, Lurie says, as well as bring more retail back and further cut red tape that can be onerous for businesses.

Yet Lurie says public-safety improvements and cleaner streets, combined with many workers’ return to the office and AI growth, have San Francisco “on the rise."

“I went to get coffee yesterday, and the guy behind the counter went and just looked at me and said, ‘Let’s go San Francisco!’" Lurie says.