Tech boom spurs the ‘Manhattanisation’ of San Francisco

The skyscraper that will soon be one of the tallest structures west of the Mississippi river is for now just a dusty plot. Cranes are installing an earthquake-proof foundation on the edge of San Francisco’s compact downtown, while a worker in an orange uniform by the main gate waves passing office workers around incoming and outgoing construction machinery.

When it is finished in about 2016, the 61-storey, 1,070ft-tall Salesforce Tower will be one of many new skyscrapers that will dramatically – and controversially – change the skyline of this hilly, foggy, techie city, whose real estate market is best known and loved for its colourful “painted ladies” (Victorian houses) and dramatic views of San Francisco Bay.

The city’s booming technology sector has attracted billions of dollars in investment and thousands of new workers, and although the city lacks the maddening crowds of London and New York, it is running near its own limited capacity: 800,000 residents hemmed in on a peninsula measuring roughly seven by seven miles.

Not everyone is happy with the “Manhattanisation” of San Francisco. Voters last month approved a ballot initiative that means any development seeking to go beyond existing height limits (40ft to 84ft) on certain parts of the waterfront will require the backing of voters, not just city officials. The move follows a vote last year that overturned a ruling by city planners and rejected a proposed high-end condo building that would have exceeded the standard waterfront height limit.

“Whether you’ve been in San Francisco five, 10, 15, probably even 20 or 30 years, seeing this level of construction activity that’s occurring right now is probably unique,” says Brian Saliman, a developer who plans to develop a site in the city’s central Hayes Valley neighbourhood.

Next door to the Salesforce Tower, the 54-storey, 800ft-high 181 Fremont skyscraper is under construction. Walking west a few minutes leads to more new high-rises, many comprising high-end apartments. A few minutes south leads to SoMa (South of Market), an industrial neighbourhood turned commercial district now popular with start-up companies, where new regulations are opening the way for taller constructions. One developer here has filed plans to replace a two-storey brick warehouse with a 26-storey, mixed-use building.

The fightback, however, has already curtailed some plans. The new rules on waterfront height have prompted one basketball team to cancel its bid for a stadium in the area, while the developer behind a mixed-use project on Pier 70 is now rethinking its plans.

We’re not Manhattan, we’re never going to be Manhattan, but the speed of the change has accelerated, so some people are getting worried

The initiatives are not the first time San Franciscans have taken to the ballot box to keep the city short. In 1986, voters passed what is known as Proposition M, which created an annual limit on high-rise development in the city. Prop M itself was the culmination of a long-running battle – an unsuccessful measure on the ballot in 1971 sought to cap any new buildings downtown at 80ft.

The tech boom has brought these fears back to the surface, says Karl Baldauf, who handles leasing for the 181 Fremont tower.

“We’re not Manhattan, we’re never going to be Manhattan, but the speed of the change has accelerated, so some people are getting worried about it and they want to make sure people are doing it the right way, whatever the right way is,” he says.

Propelling and enabling the building boom is the tech boom. Tech money has made the Bay Area one of the nation’s, if not the world’s, most robust economies. Unemployment in the city was at 4.4 per cent in May, against a national rate of 6.1 per cent in June. The new generation of tech workers are, like many well-off young people in the US today, more interested in the buzz of a city than the spaciousness of the suburbs.

While the previous generation of tech groups made their home in the sprawling suburbs of Silicon Valley, an hour south of the city, today’s fast-growing start-ups are leasing offices in San Francisco itself. Even companies like Google and Facebook based in the valley find that their business development executives and hoodie-clad developers prefer to live in the city and brave the daily commute.

“My daughter works down in Silicon Valley on a website, but [young workers there] want to live up here and ride their bicycles to work [or] take the subway,” says Jack Adams, construction manager on one of the downtown projects. “It’s a seismic shift in the way Silicon Valley and San Francisco work together.”

Some of the big tech groups are themselves opening small satellite offices in San Francisco. Google, for example, has looked at a space in the Mission neighbourhood, a historically Hispanic area now being gentrified as tech workers move in. Local activists have formed protest groups to oppose landlords that have been evicting long-time residents in order to sell properties into the rising market or convert rent-controlled apartments into market-rate ones.

“It won’t be this inflated free-for-all forever, but in the meantime if you have to move out of the city, you can’t just move back into your home [when prices fall],” says Sarah Sherburn-Zimmer, a well-known local housing activist.

Salesforce Tower is itself a seismically-sound testament to how the growth of technology is changing San Francisco. Originally named Transbay Tower after a nearby bus station, it was renamed earlier this year after the enterprise software company that will be its anchor tenant. “What drove the development, really starting in 2011 for the most part, was the fact that the tech industry was growing and that the financial crisis worked itself out,” says Colin Yasukochi, director of research in the Bay Area for property consultancy CBRE.

The Salesforce Tower itself is part of an ambitious project by transport agencies and the local government to make use of an area that had been filled with vacant and old buildings.

Between 2008 and 2012, however, nearly no new projects of notable scale were finished, says Roman Speron, regional operations manager for a developer now building Nema, a two-tower residential project in the city centre.

That post-crash freeze has meant that development in the city has not, even now, kept pace with rising demand – and prices have risen accordingly. Office rents have nearly doubled since 2010, while residential rents are up almost 50 per cent in that time, according to CBRE. The difficultly in trying to secure a rented apartment in such a tight market has seen some newcomers to the city turning up to realtors’ open houses with money already in their hand for the security deposit and offering more than the advertised rent.

Developers argue that satisfying the demand to live and work in a city bordered on three sides by the Pacific requires taller construction. Critics of the new developments say they are changing the face of the city without making it more affordable, or at least without bringing it back to the price levels seen before the tech boom.

The fight over waterfront development this year was fierce in part, says CBRE’s Yasukochi, because much of the proposed new residential construction there was upmarket.

“Many used it as a referendum to ask how can we allow high-priced housing to be built on the waterfront when we’re not taking care of the needs of our citizens,” he says.

For the consortium of local investors behind the Nema development, building denser meant converting a parking lot into two towers, one of 27-storeys and the other 37-storeys.

The development is in a struggling neighbourhood near the city centre known as Mid-Market that the city government has been trying hard to revitalise. From one of its roof decks, visitors can look down on to the rooftop garden at the headquarters of Twitter, drawn to the area thanks to generous tax breaks from the city.

Nema’s developers bought the land in 2006 when it was a vacant office building but had to stop construction during the financial crisis, says Speron. The satellite images on Google Maps still show the site as a block-long parking lot with a few dozen cars in it. The second of the two towers opened in February, and only 15 of the 754 units are still available for leasing. Apartments start at $3,730 a month for a one-bedroom unit and $5,400 a month for a two-bedroom. That rent is comparable to similar new buildings in the area, not all of which reserved units for affordable housing. At One Rincon Hill, a nearby two-tower development, two-bedroom apartments in its 49-storey second tower start at $5,500 per month, with occupants set to move in this August.

The Nema towers have hotel-like amenities and an app through which tenants can, among other tasks, file repair requests. The buildings’ aesthetic “is sophisticated, like nice jeans and a blazer, a little nicer than a hoodie,” says Speron.

For those without hoodies, the buildings have 90 units reserved for below-market-rate housing. Not all do. Developers of One Rincon Hill, in lieu of including affordable housing in its towers, gave $26m to a city affordable housing fund. Money from that fund, which city officials created two years ago, will go towards fulfilling a pledge by San Francisco’s mayor, Ed Lee, to build 30,000 new housing units by 2020, with a majority reserved for low-income city residents.

With median annual household income in the city at about $73,000, and starting salaries for software engineers often above $100,000, concerns persist about how the tech boom will reshape the city.

“I don’t know any housing groups that are anti-development as long as it’s development that people who live here can live in,” says housing activist Sherburn-Zimmer.

One local musician this year produced an album titled San Francisco is Doomed, a compilation of local bands’ riffs on the tech scene. The cover of the album is a collage of the downtown’s older, mostly grey stone, office buildings and the city’s French gothic-style Grace Cathedral. On the opening track, one rock band sings: “Why did you come to my town? Why are you still around? . . . You came here just for the money.”

Sarah Mishkin is an FT San Francisco correspondent

Photographs: steelblue; Patrick Batchelder/Alamy