Economic Activity

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How has economic activity been affected, particularly within leisure and hospitality sectors?

Amidst pandemic-related shutdowns, spikes in COVID cases due to new variants, and a fundamental shift to remote work, downtown cores and businesses that fundamentally rely on office workers to survive have struggled to stay afloat over the last three years. One study tracking mobile phone usage across 62 North American cities ranked San Francisco last in terms of downtown activity: only 31% of its fall 2019 activity had returned by late 2022 (compared to 68% in San Jose or 74% in New York City). This section explores trends in the region’s economic activity related to tourism, hospitality, and consumer spending, and why we’ve struggled to recoup spending and activity across our region’s central business districts.

To better understand how our retail and service sectors have suffered, we collected sales tax data from individual city-level annual financial comprehensive reports for the 25 largest regions in the nation. Our findings echoed low activity collected by mobile phones: the City of San Francisco collected $96 million fewer dollars (or 29%) in sales tax revenue in 2021 than 2019, taking the hardest hit of any large West Coast city. San Jose fared slightly better, likely related to a higher office occupancy that kept other parts of the economy afloat. Over the same time period, cities like Denver, Austin, and Phoenix all saw a significant increase in sales tax revenue, indicating an increase in local consumer spending and stronger service sector recovery.

Patterns in consumer spending among California’s largest cities also follow a similar pattern. Based on aggregated and anonymized data on credit and debit card spending, San Francisco businesses received 6.3% fewer dollars from January 2020 to December 2022. Unlike during the Great Recession, where nearly all of the reduction in consumer spending came from a reduction in spending on goods, 71% of the reduction in total spending came from a reduction in spending on services. These changes in spending patterns took a huge hit on once thriving tourism sectors. To investigate further, we evaluated hotel occupancy trends and enplanement data to better understand the health of the Bay Area’s tourism sector.

What about hotels and air travel?

RevPar, or revenue per room, is the most comprehensive metric for measuring the health of the hotel economy. It incorporates both the average daily rate and occupancy rate, and illustrates the revenue generated per room regardless of if rooms are occupied. The San Jose, Minneapolis and San Francisco regions saw the steepest declines in RevPar from Q4 2019 to Q4 2022. Despite a current occupancy rate of 64% (putting it in the middle of the pack), San Francisco its RevPar decrease by 30%, from $170 per day per room to $121 per day per room. In Tampa, San Diego, and Phoenix, the inverse has occurred, increasing by over 20% and leading nation’s hotel recovery.

In terms of enplanements (total passenger boardings), SFO and SJC experienced the most drastic drop of any major city’s airport during the pandemic, fueled by a decrease in both domestic and international tourism. After a devastating year in 2020, air travel picked back up across the board in 2021, but the Bay Area’s recovery has been slower than peer regions. From 2019-2020, most regions saw fairly comparable drops (around -60 to -70% for most airports). From 2020-2021, largely due to strict travel restrictions and extended lockdowns in the Bay Area, SFO and SJC were slowest to bring back travelers, increasing travel by around 50%, versus Boston’s 81%, New York’s 85%, or Austin’s whopping 112%.

Restructuring business away from downtown and towards smaller community hubs

Throughout the pandemic, the spotlight has been on downtown activity as a measure of the city’s economic health and vitality – but how much worse is downtown San Francisco faring in terms of business starts and closures? Are trends downtown representative of the city at large, or are other neighborhoods bolstering the city’s business activity?

From March 2020 to February 2023, the City of San Francisco saw almost as many businesses close as open, based on real time data from the Office of the Treasurer and Tax Collector, which tracks businesses that are registered and pay taxes to the city. Over this three year period, 29,456 businesses of all sizes closed, while 29,998 opened, a small net increase of 532 new businesses. The Financial District and Chinatown took the biggest hits, accounting for nearly 20% of the city’s overall business closures. For every business that closed in the Financial District, 0.5 businesses opened. The city overall fared better, seeing 1.02 business openings for every business closure, largely attributable to the city’s southern-most neighborhoods such as Bayview/Hunter’s Point, Visitacion Valley, Excelsior, Portola, and Oceanview/Merced/Ingleside, all of which saw more business openings than closures during the pandemic.

Despite a slower recovery in an around downtown, the city overall is in an upward trajectory in terms of net business starts. In 2022, 1.45 businesses opened across San Francisco for every business that closed, a higher ratio than the first two years of the pandemic, and a higher ratio than years leading up to the pandemic. As businesses and employees alike enter an age of remote work, residential neighborhoods are seeing an uptick in business activity and commercial vitality.

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