Fewer small businesses are opening in S.F. The pandemic is only part of the problem

After more than a year, Barley is still open and Anderson is still able to pay his staff. But it has been hard going, opening during the winter when vaccines were just becoming available and statewide ICU availability was hovering around zero. Foot traffic in the city was down too, with many people sheltering in place as a holiday-driven virus surge swept through the state.

At times, Anderson’s passion for hospitality and good beer seemed like the only thing keeping him going.

“When we first opened we had about 10% to 15% of expected sales,” Anderson said. “When the cards are completely stacked against you, when you can’t serve customers, when you’re hemorrhaging capital reserves, what is getting you out of bed?”

For many entrepreneurs, the answer was simple: Nothing. The latest data from the San Francisco Office of the Controller shows business openings in the city are continuing to trend downward, with some exceptions, during the pandemic.

Barley was only one of 70 bars and restaurants that opened citywide in January 2021, down from 108 the prior January and 139 in January 2019.

In December, the most recent month with available data, just 40 eating and drinking establishments opened their doors, with retail businesses following a similar, long-term downward trend with occasional upward spikes.

These numbers come as the pandemic in the Bay Area has entered a somewhat more hopeful phase. Statewide mask mandates are lifting in most indoor public spaces on Feb. 16 — with San Francisco and most other Bay Area counties set to follow suit. But with telework so ingrained in the local economy, that likely won’t immediately translate into more people sitting on barstools at neighborhood watering holes like Barley.

“We can only rely on our local regulars so much,” Anderson said of his thirsty Polk Gulch neighbors “We need tourism and office workers.”

San Francisco’s tourism recovery is also lagging other major urban tourism destinations in the U.S., the controller’s report said, as hotel occupancy rates are trending downward citywide, as of last month. And though some of that is due to seasonal habits, the data show half of the pre-pandemic average of 80% occupancy.

Office attendance was below the 10% mark citywide early on in the pandemic, but had been climbing back at the end of last year, according to city data, before the omicron surge caused that number to drop sharply again. Some workers have been returning to the office, but at levels about half of what they were at the end of the year.

“I know from our members at the chamber you’re going to see them return to the office starting February, March and April,” said San Francisco Chamber of Commerce President and CEO Rodney Fong.

Still, office real estate vacancies have continued to rise since the beginning of 2020 in San Francisco, the controller’s report found, pointing to many businesses cutting back on a significant expense they may not need long term. And while some office workers are returning, the overall trend, according to a recent federal report, is toward more, and more permanent, remote work.

Even if the office crowd does return, some of the city’s well-publicized, and often overamplified, challenges make it harder for proprietors like Anderson to earn a buck.

He said he built a parklet last year in the alley adjacent to Barley, complete with televisions, speakers and plants. Patrons filed into the outdoor space to sip craft beer and watch the Superbowl last February. But two months later it was in bad shape.

Anderson said he would have to clean it out everyday, rinsing off feces and sweeping up needles. Once, it caught on fire. Eventually a person overdosed and died in the space, he said, and he closed it down.

“Things were just so hard,” Anderson said. “I was working a 60, 70 hour week with a little kid at home.”

A tent encampment in the alley has also grown, he said, although most of the residents there don’t cause him any trouble and he knows many of them by name.

Mayor London Breed recently briefed the city’s Board of Supervisors after an out of state trip and said her talks with business leaders touched on issues like property crime, ballooning housing costs, homelessness and the opioid epidemic, which are impacting how people see the city.

Some business owners have also complained of San Francisco’s long and expensive process to get the proper licensing and inspections before they can open up, although the city has taken steps to loosen some of its rules during the pandemic.

Early last year Mayor Breed passed legislation to provide $5 million in fees and tax waivers for small businesses hit hardest by the pandemic, including bars and restaurants. Breed also introduced a ballot measure earlier in the pandemic aimed at cutting bureaucracy in the permitting and inspection process, and to modernize zoning along neighborhood commercial corridors.

The city also delayed a tax for vacant storefronts in some business districts, which excluded Union Square and the Financial District, but the moratorium expired last month.

For some business owners like Steve Mayer, owner of Grant Avenue French mainstay Cafe de la Presse, the changes haven’t made enough of a difference.

Mayer said another venture that he is currently getting up and running, Superfine Kitchen, located in the Russ Building downtown, is designed to cater to office workers but he expects the permitting process and inspections to take roughly three months before he is fully operational.

“It’s a street fight every single day between the cost of employees, lack of people downtown, government regulation and COVID,” Mayer said.

Fewer restaurants and retail businesses opening also means a fundamental change in the makeup of a neighborhood, said Fong, the chamber president.

“In San Francisco, part of its cool quirkiness is you had some businesses whose storefronts were open because of their [owners’] passion,” Fong said, referencing everything from a costume shop on Haight Street to a downtown fly fishing store. Those kinds of stores define the neighborhoods they inhabit, he said.

That passion is a sustaining characteristic for small business owners like Anderson, the bar owner.

“I believe in the city for the long run, I believe in the heart and soul of it,” he said, stressing the importance of a city’s small business economy for its cultural and otherwise diversity.

“I’m going to stay here and continue to fight.”