WEEK AHEAD

"Today, we decided to leave our policy interest rate unchanged and to continue to reduce our securities holdings. Given how far we have come, along with the uncertainties and risks we face, the Committee is proceeding carefully. We will make decisions about the extent of additional policy firming and how long policy will remain restrictive based on the totality of the incoming data, the evolving outlook, and the balance of risks…

So, there's plenty of risk out there. But I would go back to the bigger picture from our standpoint is, we've got a very strong economy, strong labor market, making progress on labor market, making progress on inflation, and we're very focused on getting confident that we have achieved a stance of monetary policy that is sufficiently restrictive. That's really our focus."

 – Chair Powell's FOMC Press Conference, November 1, 2023.

WFH Capital of America – San Francisco

San Francisco, a city steeped in history and innovation, has been known for many unique features. It's been the City of Fog, celebrated for its iconic cable cars and the stunning Golden Gate Bridge, and even played a pivotal role in the California Gold Rush. It earned its stripes as the Capital of California Cuisine, became a global tech hub, and is now proudly home to the Golden State Warriors. But, in the wake of the COVID-19 pandemic, a new moniker has emerged – the Work-From-Home (WFH) capital of America. You see, in the age of remote work, leaving the city no longer means leaving your job.

The consequences of this WFH trend have left a noticeable mark on San Francisco's downtown landscape, where over 30 million square feet of office space now stands vacant. It's a stark departure from the pre-pandemic days when office vacancy rates averaged a modest 5%. As of the most recent data reported by CBRE Research in Q3 2023, that rate has skyrocketed to a staggering 34%. This high vacancy rate puts San Francisco in a unique and dire position, setting it apart from other major metropolitan areas in the United States, as the national average office vacancy rate is lower at 19.4%. By comparison, New York's Manhattan averaged a 9% office vacancy rate before the pandemic and currently is at 22.1%.

The repercussions of this shift are far-reaching. The city's tax revenue, budget, retail businesses, the small enterprises it supports, not to mention the housing ecosystem for its workers, are all hanging in the balance. A decline in office space translates into a decline in revenue, effectively transforming the urban landscape into a potential economic zombie town – a situation nobody wishes to entertain.

San Francisco's current mayor is eyeing a solution to tackle the city's housing shortage and the need for low-income housing. One approach being considered is the conversion of some office buildings into apartments. However, here lies the challenge; experts estimate that only around 10% of San Francisco's office space is convertible into residential units.

The key lies in the ability to reinvent this redundant office space creatively. But can this transition generate tax revenue and fulfill the city's socio-economic requirements? That's a puzzle that's yet to be pieced together.

There are inklings of hope with the rise of the artificial intelligence sector, ushering in new companies and potentially the need for office spaces. But the real question is whether this AI boom will generate more jobs in the long run or merely replace existing ones, maintaining the demand for office space in the city's future – thus perpetuating the urban doom loop.

As the story unfolds, San Francisco faces the daunting task of resolving its empty office space predicament, all while navigating an economic slowdown and observing other cities recovering more swiftly in the post-pandemic landscape. The longer this issue persists, the quicker it risks setting off a domino effect within the urban fabric – a true urban doom loop that no one can afford to ignore.