How can San Francisco revitalize its downtown in the wake of the COVID-19 pandemic? With an office vacancy rate of 27% — a rate likely to increase as leases expire and employers make flexible work permanent — the city’s downtown needs to adapt to become more resilient.
Despite what recent news headlines may imply, San Francisco is not alone in facing the challenge of a struggling downtown. Even before the pandemic, multiple cities were considering the evolution of their downtown spaces. As early as the 1990s, cities like Austin, Philadelphia, and Raleigh began diversifying their office-based downtowns by developing mixed-use neighborhoods with places to eat, have fun, socialize, and work. These non-office-centric downtowns have faced fewer post-pandemic challenges than downtowns with less of a land use mix.
How Are Calgary, Washington, D.C., and Chicago Revitalizing Their Downtowns?
As San Francisco thinks about how to transform its struggling downtown into a lively, community-based neighborhood, it can look to three cities that have already begun this effort: Calgary, Washington, D.C., and Chicago. Like San Francisco, all three have historically been highly reliant on the office market, making their largely single-use downtowns vulnerable to the exodus of office workers. Calgary has been dependent on the energy sector and Washington on the government sector. Chicago is home to many old buildings that have consistently struggled to draw businesses as tenants. Each of these cities has created comprehensive and forward-thinking initiatives to bring its downtown back to life.
Calgary has struggled with downtown vacancies for the better part of the last decade. Its energy-sector-reliant economy faced a recession in 2015–2016 after oil prices dropped. As a result, office vacancy rates in the city reached 30%, and they have consistently exceeded 20% since 2016. However, Calgary is slowly but surely reversing that trend. Between the fourth quarter of 2021 and the fourth quarter of 2022, the city decreased its downtown vacancy rate by 2.5%, from 29.7% to 27.2%.
Following the outbreak of the COVID-19 pandemic, Calgary created a government incentive program aimed at revitalizing its downtown. In April 2021, barely a year after the pandemic began, the City Council approved Calgary’s Greater Downtown Plan authorizing a $200 million initial investment to transform Calgary’s downtown from a traditional office-based space to an amenity-rich city center. Over 10 years, the plan aims to achieve this goal through financial incentives for office conversion and residential development as well as funding for public space improvement projects, community events and spaces, and city staff to deploy the plan. The largest portion of the initial investment was dedicated to expanding and upgrading the Arts Commons, one of Canada’s largest arts centers and community spaces. Calgary has continued to add funds and programs to advance the goals of the Greater Downtown Plan.
Calgary’s most proactive downtown revitalization effort has been the Downtown Calgary Development Incentive Program. Established in July 2021 by the City Council, the program commits $100 million in city funds to helping downtown building owners convert vacant office buildings into residential units. Grantees are eligible for $75 per square foot of space, up to $10 million per property. Fourteen projects are currently under consideration for the program, of which five have been officially approved. If all fourteen are approved, these projects will create more than 2,000 residential units, removing two million square feet of vacant office space from Calgary’s downtown. The city is currently undertaking phase two of the program, which will explore possibilities for non-residential conversions, such as community spaces, hotels, and laboratories.
Like Calgary, Washington, D.C. is exploring downtown revitalization efforts to create much-needed affordable housing. These efforts began before the pandemic with the passage of the Office to Affordable Housing Task Force Establishment Act of 2018. This act commissioned a task force to assess the potential for converting vacant office space into affordable housing after the district’s primary employer, the federal government, allowed more flexible and hybrid work, leading to increased office vacancies. When the task force published its recommendations in 2019, it found that few downtown buildings were suitable for conversion, in part because office vacancy rates were low at 11%, and few buildings were fully vacant. More buildings were candidates for office conversation outside of the downtown core. The task force concluded that government subsidies would be required to encourage and ease office-to-residential redevelopment, that zoning incentives should be provided to increase allowable densities, and that the city should fund feasibility studies to determine the costs of conversions.
Washington revived its interest in downtown office-to-residential conversions after the pandemic increased vacancy rates; its Central Business District saw an 18.4% total vacancy rate in the fourth quarter of 2022. The increase in vacancy rates meant that additional office buildings became candidates for conversion to residential units. Taking a page from the task force recommendations, Washington Mayor Muriel Bowser introduced the Housing in Downtown Abatement Program. This program was created to catalyze Mayor Bowser’s larger Comeback Plan, which seeks to transform downtown and draw 15,000 new residents to it. To incentivize residential conversions, the program awards tax abatements for properties that change their use and develop 10 or more new housing units, of which at least 15% must be affordable. Applications for the program will become available later this year.
Washington is also attempting to bring businesses back to downtown through an incentive program called the Vitality Fund. Recognizing the importance of having active, rooted businesses in the downtown core, the Vitality Fund seeks to provide benefits to employers planning to relocate, expand, or retain their offices in the district. For up to five years, the fund awards businesses $100,000 to $1 million that can be used for rent, operating costs, down payments, building improvements, workforce training, and hiring costs. To qualify for the fund, businesses must have at least 25 employees in the Washington area who work on site half time, lease or own at least 7,000 square feet of Washington office space, be part of a qualifying sector, and commit to remaining in the district for five or more years. Awardees must also commit to either participating in a workforce development program or spending 5% or more of their annual contracting funds with local businesses.
Chicago’s beautiful and historic architecture is nowhere more prominent than LaSalle Street, home of the city’s Financial District. Nicknamed “The Canyon” due to its tall buildings, LaSalle is home to art-deco style skyscrapers and historic landmark buildings. These buildings have struggled to fill their offices as employers flocked to newer, amenity-rich developments in other parts of the city. The pandemic only intensified this problem, and vacancy rates on LaSalle Street (26%) have become significantly higher compared with those in the rest of the central business district (21.5%).
In a city where the number of people living downtown has doubled since 2000, local leaders are tasking themselves with expanding this population growth to LaSalle Street. In September 2022, Mayor Lori Lightfoot introduced the LaSalle Street Reimagined initiative, which will provide government incentives for projects that convert office space to residential units, reactivate ground floor spaces for community use, and change storefronts to create neighborhood amenities such as restaurants and grocery stores. To realize these projects, Mayor Lightfoot detailed a broad range of public resources, such as state and federal tax credits, property tax incentives, and funds from the LaSalle/Central Tax Increment Financing District to subsidize private development. (Previously, these funds had been available only for public infrastructure projects.) The goal of the LaSalle Street Reimagined initiative is to create new storefront businesses and more than 1,000 new housing units, of which 300 would be affordable. As of March 2023, Chicago is considering six proposals for bringing housing and other new uses to LaSalle Street.
What Can San Francisco Learn From These Cities?
Calgary, Washington, D.C., and Chicago all recognized the unique challenges their downtowns faced and rapidly established programs to address office vacancies. Instead of relying on private employers and citizens to return to downtown organically, city leaders stepped up and formed plans to remake their downtowns into places for people to live, work, and socialize. A recurring theme in these plans is the use of local government incentives. Downtown revitalization efforts, particularly office-to-residential conversions, are typically very expensive and complex, deterring private developers and business owners from undertaking them. By offering funding and other incentives, Calgary, Washington, D.C., and Chicago are able to work with private entities and make real improvements to vacant office spaces and empty storefronts.
Now, it’s San Francisco’s turn. Mayor Breed recently announced her own downtown revitalization plan, the Roadmap to Downtown San Francisco’s Future, which includes a three-year tax break of up to $1 million for new businesses, a delay of certain scheduled business tax increases, and code changes to encourage office-to-residential conversions. But can more be done?
SPUR is convening a group of local government leaders, downtown experts, and community stakeholders to assess successful downtown recovery efforts and to determine which policy tools and incentives would be the most effective for San Francisco. We look forward to working with the city to act on our findings and to develop an equitable and exciting new version of San Francisco’s downtown.
Thank you to John Bela and Sujata Srivastava for their assistance with this article.