By Robert Sammons, Senior Director, Northern California Research
I don’t think it’s ever been inexpensive to live and/or work in the Bay Area. Housing and transit costs have almost always been burdensome to those who choose to occupy what is one of the most beautiful spots on the planet. Office space, during this economic expansion, doesn’t generally come cheap either. There has been recent pushback with some feeling that it’s best to move on to less expensive spots. Yet tech, in particular, remains in expansion mode from San Francisco to Silicon Valley, with job growth continuing in a region that is already considered to be at full employment. If one wants a job they can likely have one (or two or three) but do those jobs pay enough to live here and can you get back and forth from home to work for a reasonable price or commute time? The Bay Area is hot though – one of the hottest markets on earth in fact – so why not add a tax or two to take advantage of that.
For the top tier workers and employers, say tech companies that have or are about to IPO or those that may have received tax breaks in the past, things may get a bit more difficult this year. The City of San Francisco has one tax break expiring and one tax possibly being added to the November ballot.
Back in 2011, the Board of Supervisors passed a payroll tax break for companies over a period of time willing to move to the Mid-Market area. “Lovingly” named after a certain tech company that moved to and remains in that submarket, that tax break is now expiring. The San Francisco Chronicle has taken a really deep dive with three separate stories into how it all came about, the promises made and the promises kept. The tax break has been in effect for essentially eight years with substantial change created along Mid-Market. But it is, at best, still a work in progress. What began as a boon for tech companies has now helped spur a new residential neighborhood with high-end high-rises now underway. Check back eight years hence to see how it all turns out.
Meanwhile another cleverly-named tax is likely going to make its way onto the ballot in the fall – the IPO tax. Yet to be finalized, it will ding those companies (and thus its employees) headquartered in San Francisco that are going public such that they all have to essentially pay into a fund to help solve the city’s ills. Vox has a great story explaining the details of how it could play out and how it could backfire. Going forward, will a start-up really want to set up home in San Francisco knowing that if they do go public, they could get slapped hard?
Meanwhile, 49% of a building is sold and the city gets nothing in transfer tax. This is not new news at all – happens all the time. It’s just an added layer in the tax game and the San Francisco Chronicle brings it out into the light.
Some neighborhoods are looking to tax themselves even more to make sure they have clean streets above and beyond what San Francisco is able and willing to do. Again, these benefit districts have popped up all around the globe. But it does add to the cost of living to those who can and cannot afford it.
On top of all of those, there are two taxes passed over the last year, both known as Prop C (don’t ask me why). One is a commercial rent tax for childcare and early education while the other is a gross receipts tax for homelessness services. These taxes are being collected now though we could see changes or repeals to both. I only bring this up to give a more complete picture of the recent changes to the tax situation in San Francisco beyond just what has happened over the past few weeks.
Yet again, this week brought more news about big developments about to pop in Silicon Valley. For the past few weeks, the focus has been on San Jose but now it’s Santa Clara’s turn in the spotlight with a project next to Levi’s Stadium potentially adding some 9 million square feet of offices, housing and more. The San Francisco Chronicle and The Mercury News relay many of the details. There’s also a similar project not far away though that will be saved for future discussion.
There will be a groundbreaking this summer in San Francisco on a fully approved project known as 5M or the Hearst site or the Chronicle/Examiner site or 415 Natoma Street (take your pick). When completed it will contain around 640,000 square feet of office space along with retail and housing on the edge of, but not in, the Central SoMa District. Meanwhile, several more deals have or will close soon taking more space off the market and dropping the vacancy rate even lower. Yes – even with the cost of being here the market remains red hot.
Some of you may know I’m a HUGE travel geek. This week I was very excited to read about and see pictures of the new TWA Hotel at JFK Airport in NYC (lots of initials there). I was truly gob smacked at how stunning the property looks in what is partly within the historic TWA Flight Center. I was lucky enough to tour the property a few years ago when it had been empty for quite some time but was still beautiful. Its opening was rocky to say the least – they just were not ready even for a “soft” opening. However, I fully plan to show up there over the summer for cocktails and dinner and an overnight stay overlooking the runways.
This post is commentary from the latest weekly edition of our NorCal Newsline, which you can subscribe to for free by e-mailing firstname.lastname@example.org.
Robert Sammons is Cushman & Wakefield’s Senior Director, Northern California Research. Based in San Francisco, Robert’s principal roles include working closely with the C&W research teams across the Northwest – including Northern California, Portland and Denver. Robert is author of numerous documents that delve into a wide variety of real estate and economic trends. He has been a quoted source for all manner of real estate and related economic information in many widely known media outlets across the country. Robert has 29 years of real estate experience as both an appraiser and researcher. He earned a BBA in Real Estate from The University of Georgia and an MS in Real Estate from Georgia State University. Robert is a member of the Urban Land Institute.