Meanwhile, San Francisco has seen its valuations fall 18% since the start of 2022 and 8.2% since 2019. This is likely due to the lingering effects of a high concentration of technology tenants and a more rapid adoption of remote work at the onset of the pandemic, compounded by rising crime rates and quality of life concerns.18 Vacancy rates soared and building values fell. San Francisco has since recovered slightly in the wake of the emergence of generative artificial intelligence. Around 20% of the tech talent pool is based in the Bay Area, and although several large leases by AI companies have been signed recently, office vacancy rates remain at record highs.19
Three of the top 25 metro areas – Miami, San Diego and Orlando – have actually seen office valuations rise since their 2022 peak compared to most other cities. Miami has blossomed into a technology hub in the post-pandemic era as talent and businesses have been attracted to its warm climate and low tax burden.20 San Diego has similarly benefited from technology companies relocating to the region, adding new players to its already diverse tenant base and seeing vacant office properties converted to other uses.21 Orlando, despite recent large-scale vacancies and significant exodus, has weathered the storm thanks to strong underlying market demographics. The metro area has diverse industry sectors across technology, hospitality and healthcare, and a strong pipeline of young talent from surrounding universities.22
Property taxes are a large part of city revenues, accounting for approximately 30% of local general revenues.23 As such, declines in office building assessments in most of these metropolitan areas could pose challenges for local governments. Additionally, fewer office workers in certain office-dense areas could reduce demand for ancillary services such as restaurants, parking lots, and dry cleaners, further reducing local government revenues.