COVID-19’s Devastating Impact on Small Businesses

High rents, high unemployment, and an exodus of white collar tech workers could spell a grim future for the city's small businesses.

As the pandemic keeps San Francisco’s economy largely shuttered, small businesses are facing the consequences. At least 80 small businesses have been permanently closed since March, according to SF Weekly’s running count.

There are reasons to believe the outlook for San Francisco’s small businesses is worse than in many other cities. A new study from lending marketplace LendingTree found that San Francisco small business owners had the 5th grimmest outlook of all major U.S. cities — eclipsed by Austin, San Antonio, San Jose, and New York.

The below list is only partial, and likely misses many businesses that do not have as large of an online presence. A recent study from Yelp found that the San Francisco metro area, which includes Oakland, Hayward, and surrounding cities, saw 369 restaurants permanently close between March 1 and July 10, and a staggering 2.1 thousand total permanent business closures. That puts the region fourth in the nation, behind much larger New York, L.A., and Chicago, in business closures, according to the study. 

So, what’s at the root of all these closures? San Francisco’s relatively strict reopening process is certainly a factor. But other forces may be pushing business owners to the conclusion that remaining open is just not worth it.

San Francisco, Austin, San Antonio, San Jose, and New York City, the top five major cities where small business owners are most pessimistic about reopening, are all in states that have been hit hard by the pandemic. Austin, New York, and San Francisco are all major tourism and hospitality hubs — two industries that have almost completely shut down. These three cities, in addition to San Jose, also have very large concentrations of white collar tech workers, many of whom are expected to continue to work remotely even after the pandemic ends. They are also very expensive cities, where it might be harder for business owners to justify high rents while making little to no revenue.

While white collar workers are less likely to be laid off than their low-wage counterparts, many appear to be leaving cities like San Francisco as the pandemic continues, and taking their spending money with them.

The LendingTree report listed Raleigh, Salt Lake City, Sacramento, Indianapolis, and New Orleans as the major cities where small businesses are most optimistic about the future. These are the kind of spacious, more affordable cities — albeit with thriving cultural scenes — that urban theorists expect remote workers to gravitate to. These trends could already be in motion: Sacramento saw median one bedroom rents rise 5 percent year over year in June, whereas S.F.’s one bedroom rents declined by 12 percent over the same period, according to a Zumper report.

In other words, it’s not just the immediate economic toll of the pandemic that will affect the survival of small businesses, it’s the re-shuffling of the economy. 

But as high income people move by choice, many low income people are at risk of eviction, especially as federal unemployment benefits run out. In the Bay Area, many low-income people work as cooks, janitors, and security guards at major office complexes that have been closed. Many restaurant and hospitality workers have also been laid off. Unemployed people face especially challenging circumstances in the Bay Area, where housing and cost of living are so expensive. 

The economic devastation facing low-income people could be taking a toll on the businesses that cater to them. Meanwhile, the flight of high-income tech workers to places like Sacramento could be taking a toll on more expensive businesses. Job losses, decreased tax revenue, and other economic ripple effects from these business closures will ultimately be felt across the city.

One small bright spot could be for businesses that are well-positioned to move their operations outdoors, like casual restaurants on shared streets like Valencia and Grant. 

With challenging circumstances bearing down from many directions, it makes sense that San Francisco small business owners see grim times ahead.

San Francisco businesses closed since the pandemic:

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