Data Doesn’t Support Mass Exodus Out of San Francisco

There have been wide reports of the mass exodus from the Bay Area during the pandemic, but a new economic letter by Jerry Nickelsburg from the UCLA Anderson School of Management says that the data doesn’t support the claim. Instead, he sees a temporary change due to the pandemic and believes that the market contraction could reverse once the pandemic subsides.

“My interest here was to ask if there was evidence in the data of a mass exodus in the Bay Area indicating that tech was moving out and Silicon Valley and San Francisco are not going to be what they were before. The data says no; that is not what is happening,” Jerry Nickelsburg, faculty director and adjunct professors of economics at UCLA Anderson School of Management, tells GlobeSt.com.

During the pandemic, San Francisco apartment rents have fallen dramatically, indicating the troubling market conditions. However, Nickelsburg contrasts the current market conditions with the 2000-2001 exodus from the Bay Area following the tech bubble. “The data that has been cited for the mass exodus is the dramatic fall in rents. The fall in rents, however, was less on a percentage basis than we saw in 2001 when there was an exodus,” Nickelsburg says. “The home prices in 2001 fell, but they are increasing today. So, this looks different than that event, and that is because there is not a mass exodus but a pandemic response.”

Nickelsburg doesn’t have a crystal ball to predict how rents will respond following the pandemic, but he does predict that both students and remote workers will return to the market, which could reverse the current trend. “This is not a prognostication about what is going to happen with rents, except for the following: when students go back to campus, they will increase the demand for rental housing, and when people return to the office, at least some will be moving back closer to their jobs to avoid the long commute,” he says.

When asked about the corporate exodus from the area—both HPE and Oracle have announced plans to move, along with a handful of smaller companies—Nickelsburg doesn’t believe that these trends will have a significant impact on the market or that they were catalyzed by the pandemic. “A couple of mature companies have decided to relocate their headquarters. The question that you want to ask is, ‘Is that unusual?” If you look back over the last 30 years, it is not unusual. If you look over the last 30 years at corporate relocations, they are generally for reasons that make sense,” he explains.

For investors, Nickelsburg isn’t suggesting that this won’t be a challenging market in the near-term, but there are still sound reasons to stay in the market. “Investors always have to be concerned about changes in rental rates and changes in occupancy rates. Rents in San Francisco have declined by 20%, but they are still some of the highest in the nation. So, this might represent a capital loss for owners of multifamily housing, but not necessarily discouragement for new rental properties; however, that remains to be seen. It is an open question,” he says, adding that California hasn’t solved the housing shortage problem.