Author: Anish Chowdhury
Graphics: Businesss Review at Berkeley
As a new mayor takes over and the AI industry booms, many businesses that were relocating their offices out of San Francisco to the South are once again finding the Bay Area a place of opportunity. The result is a slow re-emergence of the San Francisco real estate market while Austin begins to dry up.
How Austin Began to Overtake San Francisco
San Francisco’s fate during the pandemic seemed bleak as the entire financial district emptied out. On the other end of the spectrum, due to its rapid adoption of business-friendly policies, Austin appeared to be on track to become America’s next tech hub. However, over the last year, the two cities seem like they are switching places as a result of an economy centered on artificial intelligence growth and a new, friendly policy by the SF city hall. Although San Francisco has not officially returned to its pre-pandemic glory, this piece explores how a historically strong tech base may help the city move forward to a possibly optimistic future of the financial district, while examining how Austin is struggling to create a tech hub.
San Francisco Exodus
When COVID-19 hit the Bay Area, it became apparent that remote working was a part of the new long-term work environment in California. As firms attempted to resume in-person work, San Francisco’s COVID-19 regulations reduced the appeal of staying in the Bay Area, largely due to high taxes and operating costs. During the pandemic period (2020-2022), 70 companies in the Bay Area announced their plans to exit. With it, 143,000 office daytime jobs left the financial district and the decline in foot traffic contributed to 2065 small businesses closing for good. However, it did not stop at corporate relocations; 77,000 workers saw remote work as an opportunity to relocate to more affordable areas while retaining their Bay Area-based jobs. On top of this volatile state of the economy, the crime situation was reaching an all-time high, with homicides going up and car theft reaching a record seven-year high. In turn, the once bustling San Francisco became a ghost town. Iconic malls such as Westfield closed after 25 years, and Union Square’s Macy’s announced plans to close. In SF, a record 37% of offices reported vacancies in Q3 of 2024.
The Austin Boom
Austin, by contrast, was booming. The lack of income tax, business-friendly policies, good weather, and affordability made it an attractive location to both firms and employers. During the pandemic, Oracle and Tesla announced their plans to relocate from California to Austin. Apple built a $1 billion campus in the area, while Samsung committed $17 billion to a semiconductor fab in the Austin Area. Between 2021 and 2023, Austin ranked number 2 for net office absorption in North America. For many, Austin was the future. As Forbes put it in 2021, “From The Rose Bowl To Silicon Valley, Texas Is Eating California’s Lunch.” This optimism fueled the housing market, as Austin property values surged by a drastic 40% in 2021 and developers rushed to Austin. In 2021, 23 buildings were under construction in Austin’s downtown alone, adding up to over 33,000 units. While Austin was thriving, San Francisco’s downtown struggled.
How a New Mayor and AI may Change the Tides
After UC Berkeley alum Daniel Lurie won the San Francisco mayoral race and took office in January 2025, he promised two things: to bring back jobs and lower crime. Metrics indicate Lurie is succeeding on the crime aspect. City hall has increased funding to police and social workers, resulting in homicides and drug overdoses going down 40%. In terms of business, progress has been slower. Lurie has aimed to secure short-term leases and leases with favorable terms with numerous companies. These policies have resulted in vacancy rates going down about 4% in SF office spaces. Additionally, Lurie has secured $40 million in private investments to help small businesses and revitalize the downtown area. Because of this, Lurie boasts a 70% approval rating, the highest among any politician in the US.
Policy is not the only driver, however; the new AI boom is attracting massive investment within the Bay Area. Since 2022, the global AI market value has more than doubled to over $300 billion. With this increased capital, firms have seen new business-friendly policies in SF as an opportunity to invest. Since 2022, AI’s tenant footprint within SF has grown from 2.1 million square feet to 4.8 million. OpenAI has already signed a ten-year lease for a 315,000-square-foot office. And companies that previously expressed pessimism about SF, such as Salesforce, have committed to investing $15 billion within the city as the “AI race” intensifies. Ultimately, the re-emergence in SF investment can be attributed to pragmatic policy shifts combined with the history of Silicon Valley’s talent, customers, and capital.
In the end, despite these positive developments in policy and the AI world, San Francisco office vacancy rates remain at a staggering 34.4% which is much higher than the pre-COVID rate, which hovered around 5-6%. The road to a full recovery remains dependent on how the community deals with policy, safety, tenants, and businesses.
Austin’s Trouble
When looking back at Austin’s pandemic rise, it is crucial to remember two key points: First, its growth relied primarily on California-based companies, and second, a significant portion of the mass relocation to Austin was driven by the availability of affordable housing during the remote work era. Neither of these paths are sustainable. As interest rates from the Fed rose between 2022 and 2023, tech companies began to have less capital to invest in expansion projects, resulting in a significant slowdown in expansion projects in Austin. The result: over 300,000 tech workers were fired in 2023 alone. Additionally, companies such as J.P. Morgan, Google, X, and Meta found that remote working was detrimental to corporate culture and innovation.
All of a sudden, the number of people who would have the opportunity to work remotely from Texas at a California-based office began to dwindle. Ultimately, Austin’s tech space was unable to handle a market correction amid high interest rates, resulting in a downturn in the real estate market. Home prices dropped by over 15%, and the vacancy rate, which was previously almost below 7%, reached a record high of 26%.
In the long run, despite being touted as a city of innovation, once traditional tech companies faced a non-expansionary market, Austin’s growth began to dry up.
The Future
Ultimately, despite being business-friendly and having ample real estate, Austin has not displaced San Francisco as the leading tech hub. The reason is simple: experience still matters. SF and the Bay will have been the heart and soul of tech since the 1950s, and developing comparable infrastructure and space within a city takes decades. Despite such history, SF still has bureaucratic regulations and a high crime rate, which still pose a legitimate threat to its economic future. However, with a new emerging AI industry paired with pragmatic policy, the darkest days for SF may be over and a new golden age may be on the horizon.
Take-Home Points
- Austin emerged as a winner during the COVID-19 pandemic, while San Francisco real estate seemed volatile.
- San Francisco’s policy change and the emergence of a new AI industry are restoring hope, especially downtown.
- Austin’s tech base has lacked resilience, leading to a sharp market correction
- Despite challenges, San Francisco’s technology infrastructure is significantly more well-developed than Austin’s, making its real estate future appear more positive.