Like the private sector, The City shrinks office footprint to save money

The decline of real-estate values in and around Civic Center has been, in a twisted way, to The City’s benefit.

San Francisco is hoping to shave about $10 million from its budget over the next two years by shrinking and consolidating its office space in and around the Mid-Market and Civic Center areas.

Ironically, it’s an approach reminiscent of that taken by private-sector companies in recent years amid a dramatic decline in real-estate values, which in turn has caused The City tax-revenue losses and budget woes.

The fiscal benefit of the real-estate consolidation is immediate. The savings — $6.2 million next year and $2.9 million the following — were among myriad ways The City looked to shed costs as it closes a two-year deficit of about $800 million in Mayor London Breed’s budget proposal , which she introduced late last month.

Compared to the cuts made to city departments and government-funded social programs, reductions in real-estate spending are less controversial.

Still, it’s a delicate balance for The City. With its budget growing north of $15 billion, it owes taxpayers diligence when it comes to leasing space. But the activity of its thousands of workers in and around Market Street is also a boon to nearby businesses.

The City maintains “a commitment to the Civic Center area, and we’re staying,” said Sophie Hayward, a spokesperson for the City Administrator’s Office, which oversees San Francisco’s real-estate portfolio.

Still, city government was not immune to the changes in work patterns hastened by the arrival of the COVID-19 pandemic. Four years later, non-essential city employees are required to work three of the five days of the workweek in person.

In addition to its lease at 1455 Market St ., The City negotiated a lower-priced lease for space it utilizes at 1145 Market St.

According to the City Administrator’s Office, lease restructuring has saved 11 city departments money in their real-estate budgets.

The 22-story building at 1455 Market St . was previously the headquarters for Uber and other tech companies that made Mid-Market their home when The City began offering tax incentives in 2011.

Under a 21-year lease approved by the Board of Supervisors earlier this year, The City will pay about $6.5 million per year to start, with 3% increases every year after, for about 157,000 square feet of office space. It has an option to expand its footprint within the building within three years or outright buy it.

In total, about 700 city employees now work at 1455 Market St.

The Board of Supervisors has implored the City Administrator’s Real Estate Division to take advantage of the COVID-induced collapse of real-estate prices to save money, including when it rejected a proposed five-year lease at 1155 Market St. and pushed for a better deal.

Breed’s proposal is now in the hands of the Board of Supervisors, which will hold a series of public hearings on the budget over the coming weeks. The full board is expected to vote on the budget in July.