During the first two years of the pandemic, 30,000 residents hightailed it out of San Francisco.  Now people are moving back.

San Francisco had a net increase of 4,682 incoming residents from July 2022 to July this year,  both domestic and international migration, the San Francisco Standard reported, citing figures from the state Department of Finance 

The uptick over the past year marks the highest population growth from net migration among 58 counties across the state.

Net new migrants equals the number of people who moved in minus the number of people who moved out.  Given new births during the period, the population of San Francisco grew by 4,925 to 848,019 residents. In January 2020, before the pandemic, it had 889,783 residents.

The city’s 0.58 percent population growth ranked as one of the highest marks across a state generally characterized by population declines, according to the Standard.

San Francisco ranked third for the number of new residents behind Alameda and Santa Clara counties, which have larger populations and more births than San Francisco. 

The city saw a drop of 4,400 people, or 0.5 percent of its population, between July 2021 and July 2022, smaller than the drop of 3.7 percent the year before.

Los Angeles, with 9.8 million residents, saw its population fall by 0.15 percent, or 15,217 people, over the past year.

California, which saw its population grow until the dawn of the pandemic, lost 295,000 people in 2020 and 2021. Last year, the state lost another 37,200 residents.

While the state’s population is in decline, state officials noted the pace of population loss is slowing as pandemic shutdowns have stopped and foreign immigration has rebounded from levels prior to the pandemic.

— Dana Bartholomew

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For months, commercial market analysts have said that AI will be the savior for San Francisco’s battered office market, where one in three offices are currently empty. Now, there is finally some proof that AI firms are in fact absorbing a significant amount of space.

According to JLL research, AI companies have taken more than 1 million square feet off the market thus far in 2023, a 50 percent increase over last year’s figures. 

“It’s still a relatively nascent sector of our economy, and so to see them take down over a million square feet over the course of the year, that’s a pretty significant increase,” said JLL’s NorCal Research Director Alexander Quinn.  

The astronomical increase is likely to soften after this year, given that nearly half that figure can be attributed to the more than 400,000-square-foot long-term lease ChatGPT-maker OpenAI signed with Uber, the biggest signed in the city since 2018. Moving forward, 30 percent annual increases are more likely for the rest of the decade, Quinn said. 

That’s about the rate the field grew since JLL started tracking it in 2016, when it represented half a million square feet of San Francisco office space. By last year it had grown to 2.3 million square feet and this year it represents 3.4 million square feet in San Francisco. 

Sublease appeal

Critically, OpenAI companies are most interested in the plug-and-play, short-term subleases that the city has in abundance, Quinn said. As that space is removed either by signed subleases or lease turnover, the overall health of the commercial market, particularly rents, will recover. 

Effective rents in the city are currently down 37 percent since 2020, according to JLL, with record concessions on free rent and tenant improvement allowances. 

“As that sublease space burns off, they have to go to the direct market and landowners are not going to concede on rent the same way that a tenant would,” Quinn explained.

The AI boom is likely to be a particular help to the South of Market neighborhood, which has emptied out as many companies consolidated their offices downtown and has had some of the city’s highest vacancy rates, especially subleases. 

“It is a positive tailwind for the SoMa market,” Quinn said. “AI companies seem to be more willing to be outside that central business district.” 

As more companies move into what had been some pretty desolate blocks, it’s likely to spur others to move in as well. Plus there’s a whole layer of AI-related apps that haven’t even been launched yet and could be huge takers of office space as that still-forming business takes off, Quinn said. They will likely be drawn to SoMa, the North and South Financial District, the Design District and especially Mission Bay for its proximity to OpenAI, he said.

“AI specifically is looking for that momentum and wants to be proximate to that ecosystem,” Quinn said. “The amazing thing about the generative AI world is that it’s really wide across San Francisco. It’s not just within one submarket.”

San Francisco and San Jose represent the two major metros that could benefit the most from AI-created jobs by 2030, according to an Avison Young report, which also showed that AI dominated VC funding this year. The technology has received more than $1 billion in funding in San Francisco alone in the first two quarters of 2023, with VC funding for AI representing nearly 41 percent of total funding in San Francisco.

AI-driven recovery

By 2030, AI is predicted to take a total of 12 million square feet of office space in San Francisco, Quinn said. He expects to see vacancy peak by the middle of next year and then start to come down for the first time since the pandemic. AI companies, and all of the associated businesses that grow off of them, will drive this demand, with financial services as possibly a distant second. Tech accounts for one-third of active requirements in the market, according to Avison Young data.

As AI begins replacing humans in jobs, it will only continue to grow the economy here and other places like New York and Boston with lots of tech talent, Quinn said. So the city that is today much maligned for its “doom loop” may actually be better off than many other places in the country a few years from now.

“San Francisco was in some ways the canary in the coal mine related to sublease space and work from home. Now we’ll start to see the opposite,” he said. “I wouldn’t be surprised if San Francisco leads us out of the commercial real estate recession.”

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SAN FRANCISCO (AP) — Elon Musk’s big bet that Tesla price cuts could boost sales and profits amid increased competition and poor economic sentiment appears to be yielding mixed results. Sales soared and the company beat analysts’ expectations for net income in the April-June quarter, even as the company’s profit margins declined. Tesla shares followed suit in after-hours trading.

The Austin, Texas-based maker of electric vehicles, solar panels and batteries reported net income of $2.7 billion in the quarter, up 20% year over year. Earnings per share also rose 20% to 78 cents as measured using generally accepted accounting principles. Total revenue increased 47% to $24.93 billion.

However, analysts tend to focus on Tesla’s own earnings measure, which excludes stock-based compensation expense. Using that metric, Tesla’s net income rose to $3.15 billion, or 91 cents a share, comfortably beating the average analyst estimate of 80 cents a share, according to FactSet. Some analysts had expected falling profits due to the price cuts.

However, Tesla shares initially remained flat around $292 in after-hours trading immediately following the release of the earnings report, climbing slightly above its close of $291.26. As Tesla executives spoke to analysts on a conference call, shares plunged more than 4%.

Tesla reported strong vehicle shipment numbers on July 2, saying they were up 83% from the year-ago quarter after the company repeatedly slashed prices on its four electric vehicle models. Tesla sold a record 466,140 vehicles worldwide from April to June, almost double the same period last year (254,695).

The vast majority of these sales were for Tesla’s popular Model 3 sedans and Model Y crossover SUVs.

However, the earnings report delivered mixed messages on one of the larger questions facing Tesla: whether the automaker’s rebate strategy can increase sales while preserving its profit margins. Tesla’s operating margin, which measures how efficiently it converts sales into pre-tax profits, fell to 9.6% in the April-June quarter, a notable decline from 14.6% a year earlier. The key figure also fell sharply in the January-March quarter.

While profitability and pricing pressures continue to weigh on Tesla, Edward Jones analyst Jeff Windau said he found some comments from management on cost controls optimistic and said the company’s overall performance remains solid.

“The long-term drivers of growth remain and there will only be short-term headwinds in the current environment that we are in,” he said.

On the company’s conference call with analysts, Musk praised the company’s performance despite high interest rates and what he called significant economic uncertainty, then quickly switched to the topic of Tesla’s advanced projects like its so-called “full self-driving” software.

Despite the name, software-enabled Tesla cars can’t drive themselves, and the company warns drivers to be ready to intervene at all times. Musk praised Tesla’s work on a new machine learning system called Dojo, which the company plans to use to improve its self-driving software.

Musk also said Tesla should deliver its long-promised Cybertruck — an unusual-looking pickup truck with an angular design that couldn’t look out of place in a Mad Max movie — by the end of the year. Tesla announced on Saturday that the first Cybertruck had rolled off the assembly line.

However, analysts aren’t convinced the vehicle will be widely available anytime soon, not least because other automakers have already unveiled conventional-looking electric pickups like the Ford F-150 Lightning.

“I don’t think we’re going to see significant volume, especially this year,” said Seth Goldstein, an analyst at Morningstar Research. “Not even next year. Maybe we’ll be looking more to 2025, 26, 27 until we see them.”

(Copyright 2023 The Associated Press. All rights reserved. This material may not be published, broadcast, transcribed, or redistributed without permission.)

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Yvonne Mortirmer (Berkshire Hathaway Home Services)

Berkshire Hathaway Home Services named Yvonne Mortirmer, a 27-year veteran of Coldwell Banker, as operations manager for three of its offices in suburban Chicago, where prices have been rising.

She will oversee Berkshire’s Naperville, Glen Ellyn and Wheaton operations, the Daily Herald reported.

After her decades at Coldwell, Mortimer was most recently the director of agent development for Baird & Warner’s Glen Ellyn office, a job she left after starting in March 2021 to join Berkshire.

“Yvonne’s going to be a great resource for [agents], focusing on training and growth opportunities. She will be a great addition to the offices,” Joe Stacy, senior vice president and managing broker for Berkshire, said in a press release.

Mortimer and her new colleagues will be working through what is still expected to be a seller’s market in the suburbs and city this year, Chicago-area agents, including Berkshire’s Brian Pistorious, have predicted.

While Dawn McKenna, Coldwell Banker’s top broker in Illinois, told The Real Deal this month that homes in the city are seeing fewer multiple offers than early during the pandemic-induced seller’s market, suburban prices remain high and bidding wars there have been frequent amid tight inventory.

She expected prices to stop climbing as quickly in Chicago but to remain on the rise in the suburbs, where bidding wars have priced out first-time buyers and kept them in the rental market, which McKenna noted is also tight in the suburbs.

A swath of Chicago’s northwesterly suburbs including Lake and McHenry counties has been especially lacking in new multi-family rental development over the last 20 years, consultants have told local officials.

That has changed over the past two years of the pandemic, as the area has received numerous multi-family development proposals. Yet market research performed by Tracy Cross for a local government shows at least 320 units could be added annually across just a portion of Lake and McHenry counties each year without diminishing demand.

[Daily Herald] – Sam Lounsberry

Contact Sam Lounsberry

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