Diversify or die: San Francisco’s downtown is a wake-up call for other cities

July 16, 2023  -SAN FRANCISCO (AP) — Jack Mogannam, manager of Sam’s Cable Car Lounge in downtown San Francisco, relishes the days when his bar stayed open past midnight every night, welcoming crowds that jostled on the streets, bar-hopped, window browsed or just took in the night air.

He’s had to drastically curtail those hours because of diminished foot traffic, and business is down 30%. A sign outside the lounge pleads: “We need your support!”

“I’d stand outside my bar at 10 p.m. and look, it would be like a party on the street,” Mogannam said. “Now you see, like, six people on the street up and down the block. It’s a ghost town.”

After a three-year exile, the pandemic now fading from view, the expected crowds and electric ambiance of downtown have not returned.

Empty storefronts dot the streets. Large “going out of business” signs hang in windows. Uniqlo, Nordstrom Rack and Anthropologie are gone. Last month, the owner of Westfield San Francisco Centre, a fixture for more than 20 years, said it was handing the mall back to its lender, citing declining sales and foot traffic. The owner of two towering hotels, including a Hilton, did the same.

Shampoo, toothpaste and other toiletries are locked up at downtown pharmacies. And armed robbers recently hit a Gucci store in broad daylight.

San Francisco has become the prime example of what downtowns shouldn’t look like: vacant, crime-ridden and in various stages of decay. But in truth, it’s just one of many cities across the U.S. whose downtowns are reckoning with a post-pandemic wake-up call: diversify or die.

 A store-closing banner hangs over the entrance to the Coco Republic store near Union Square in San Francisco on June 21, 2023. San Francisco's downtown has seen an exodus of retailers and now a shopping mall owner is turning it over to its lender in the face of declining foot traffic and empty office space. While San Francisco faces some of its own unique issues the problems serve as warning signs for other downtowns across the country, which are also feeling some pain. (AP Photo/Eric Risberg)

As the pandemic bore down in early 2020, it drove people out of city centers and boosted shopping and dining in residential neighborhoods and nearby suburbs as workers stayed closer to home. Those habits seem poised to stay.

No longer the purview of office workers, downtowns must become around-the-clock destinations for people to congregate, said Richard Florida, a specialist in city planning at the University of Toronto.

“They’re no longer central business districts. They’re centers of innovation, of entertainment, of recreation,” he said. “The faster places realize that, the better.”

Data bears out that San Francisco’s downtown is having a harder time than most. A study of 63 North American downtowns by the University of Toronto ranked the city dead last in a return to pre-pandemic activity, garnering only 32% of its 2019 traffic.

Hotel revenues are stuck at 73% of pre-pandemic levels, weekly office attendance remains below 50% and commuter rail travel to downtown is at 33%, according to a recent economic report by the city.

Office vacancy rates in San Francisco were 24.8% in the first quarter, more than five times higher than pre-pandemic levels and well above the average rate of 18.5% for the nation’s top 10 cities, according to CBRE, a commercial real estate services company.

 A banner asking for support hangs outside the Sam's Cable Car Lounge near Union Square in San Francisco, on June 21, 2023. San Francisco's downtown has seen an exodus of retailers. While San Francisco faces some of its own unique issues the problems serve as warning signs for other downtowns across the country, which are also feeling some pain. (AP Photo/Eric Risberg)
Why? San Francisco relied heavily on international tourism and its tech workforce, both of which disappeared during the pandemic.

But other major cities including Portland and Seattle, which also rely on tech workers, are struggling with similar declines, according to the downtown recovery study, which used anonymized mobile phone data to analyze downtown activity patterns from before the pandemic and between March and May of this year.

In Chicago, which ranked 45th in the study, major retailers like AT&T, Old Navy and Banana Republic on the Magnificent Mile have closed or soon will as visitor foot traffic hasn’t rebounded.

And midwestern cities like Indianapolis and Cleveland already struggled pre-pandemic with diminished downtowns as they relied on a single industry to support them and lacked booming industries like tech, said Karen Chapple, director of the School of Cities at the University of Toronto and author of the study.

People make their way past retail spaces for lease at Union Square in San Francisco, on June 21, 2023. San Francisco's downtown has seen an exodus of retailers and now a shopping mall owner is turning the complex over to its lender in the face of declining foot traffic and empty office space. While San Francisco faces some of its own unique issues, such as a heavy reliance on tech workers, most of them working largely remotely, the problems serve as warning signs for other downtowns across the country, which are also feeling some pain. (AP Photo/Eric Risberg)

San Francisco leaders are taking the demise of downtown seriously. Supervisors recently relaxed downtown zoning rules to allow mixed-use spaces: offices and services on the upper floors and entertainment and pop-up shops on the ground floor. The legislation also reduces red tape to facilitate converting existing office space into housing.

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