Rents In San Francisco Bay Area See Sharp Drop As WFH Becomes The New Normal

Home rents in California's San Francisco Bay Area are sliding, with tech companies looking at longer term work-from-home (WFH) options for their workers as the coronavirus pandemic rages on with no end in sight.

Rents in San Francisco fell nearly 12% year-on-year in June as tech workers continue to leave the city, the biggest drop among all the cities in the U.S., according to Zumper,an apartment rental platform. Speaking to CNBC, Zumper’s co-founder and CEO Anthemos Georgiades, said, “Rent prices in San Francisco have historically only gone up and typically only incrementally, yet now we are seeing double-digit percent rent reductions. This is unprecedented for this generation of renters.”

The likelihood of most people in the U.S. continuing to work from home for the "foreseeable future" is strong, CNBC recently said. Research also shows that remote working can benefit employers and workers, which should add to a push toward more WFH going forward.

“A typical employer can save more than $11,000 a year for each half-time telecommuter; the result of a combination of increased productivity and reduced real estate, turnover, and absenteeism,” said a study on the dynamics of the WFH concept by 'Global Workplace Analytics' (GWA), a research-based consulting organization. The study also revealed that the upside for the workforce is that they can save 11 work days per year by not commuting to work.

Social media company Twitter and payments company Square, both based in San Francisco, were among the first tech companies that adopted the WFH model for the long term, in May. Many other companies followed suit, and Facebook CEO Mark Zuckerberg announced end-May that half of the company’s employees would be working remotely within the next five to 10 years. More than a quarter of Facebook's 45,000-plus employees work at the company's headquarters in Silicon Valley.

Earlier this week, Amazon asked its employees to continue to work from home until Jan. 8 next year as the number of coronavirus cases continues to rise.

The results of a survey conducted by the San Francisco Apartment Association (SFAA)of 300 landlords owning more than 10,000 apartments (approximately 6% of the city’s total rental units) support Zumper's findings. Nearly 7.5% of the respondents said tenants did not opt to renew their leases in the last three months (April to June). “Anecdotally, we had been hearing from members that lots of their renters were turning in their keys and leaving,” SFAA’s policy director Charley Goss told CNBC.

Facebook and other tech companies see the WFH forced by COVID-19 as an opportunity to hire from more cities and diverse backgrounds. Zuckerberg wrote in a Facebook post, "When you limit hiring to people who live in a small number of big cities, or who are willing to move there, that cuts out a lot of people who live in different communities, have different backgrounds and perspectives."

If those hiring ideas are executed, there will be a sharp reduction in the number of tech workers who move into the crowded communities in Silicon Valley every year. And that excludes the tech workers who are leaving expensive locations in Silicon Valley for cheaper and more peaceful communities from where they can continue to work.

Interestingly, Bengaluru in south India, which was once the outsourcing capital of the world and is dubbed India’s Silicon Valley, is seeing a similar trend.

“Bengaluru has witnessed a sharp drop in commercial rentals of around 20%-30% in the last few months of the lockdown when the WFH model was adopted by tech companies,” Jayanth Kolla, a partner at Convergence Catalyst, a technology research and advisory firm, told the International Business Times.

Prime Minister Narendra Modi's government ordered a national lockdown on 24 March to contain the spread of the coronavirus and about 85% of Bengaluru’s tech workers are now working from their homes.

Kolla said WFH will help add to tech companies’ coffers. “It’s a win-win situation for both parties.”

“Most tech companies have their workplaces in prime locales and pay high rentals for the same. With WFH, this expense will be done away with, and the companies’ employees are now moving to more ‘livable’ and less congested areas, or their hometowns.”