New York City beats San Francisco for superstar talent

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In the decade following the 2008 financial crisis, San Francisco became the pre-eminent magnet for talent in the U.S., taking the crown from New York City. The simplest reason was that the technology sector was booming while the finance sector was dealing with the after-effects of the recession.

Since then, both industries have evolved and the pandemic is accelerating changes that favor the East Coast. New York is seeing a more robust recovery than San Francisco, putting it in position to reclaim its reputation in the 2020’s as the premier American city for talent.

Tracking office rents used to be the best way to gauge where high-end talent was going. If rent growth in downtown San Francisco office towers was outpacing rent growth in Midtown Manhattan, that reflected the relative economic position of West Coast-based technology firms compared with New York-based hedge funds and banks. But office data has become a less reliable metric – at least for now – because of the continued postponement of back-to-the-office plans combined with uncertainty about the future of work as remote and hybrid options become more common.

Instead, residential rents make more sense when trying to figure out where talent is moving. Office traffic might be low, but we know people are working, even if it’s from their homes, and those workers still need places to live. Changes in rents tell us about where people with high incomes have moved since the spring of 2020.

And while in 2020 the story of the rental market was about people leaving high-cost cities for lower-priced cities or locations where renters could get more space for their money, in 2021 the picture was more mixed. Phoenix and Austin, Texas, still saw booming rents, but according to Apartment List, the top place for rent growth among cities with populations over 500,000 was actually New York, checking in at a whopping 32.8% year-over-year. San Francisco, on the other hand, had rent growth of merely 14.7% – in the same ballpark as cities like Memphis, Tennessee and Oklahoma City.

Since March 2020, rents in New York City are now up 5.1% whereas in San Francisco they’re still down 15.0%. So while both cities saw similar rent declines in 2020, there was a huge divergence in 2021, when New York experienced the fastest recovery of any city while San Francisco was in the middle of the pack.

Bank earnings reports this week help show why. We’re seeing a talent war unfold on Wall Street – perhaps for the first time since before the 2008 financial crisis – with large firms having to pay up to retain workers. It’s not just about the high performers – banks are raising pay for entry-level workers as well, with JPMorgan Chase & Co. announcing its second pay raise in the past six months. While banks have moved jobs to states like Texas and Florida over the past several years, there are still several hundred thousand financial services employees in New York City, and when that sector is boosting pay, some of that increase is going to flow through the economy in the form of higher rents.

As for the technology industry, it’s by no means in a slump, even if stock prices have fallen over the past few months. But the geographic future of the industry is more murky than it’s been since the dawn of the internet era. The biggest companies, to the extent they’re still expanding their office footprint, are increasingly doing it outside of the West Coast. In some cases that means heading to trendy fast-growing cities like Austin, but it also includes New York City.

Farther afield, the emergent industries that capture the imagination of venture capitalists and technology thought leaders these days are the metaverse – building rich, immersive digital worlds – and Web3, which is in part a rebranding of cryptocurrency and blockchain-related technologies. It’s unclear where these industries will be most prominent geographically, or whether they’ll even have a traditional geographic concentration at all.

If existing, large technology firms have capped out their growth in San Francisco, and emergent ones don’t have a large presence there, San Francisco might be headed toward a period of stagnation rather than the dynamism that has defined it for decades.

Even if it’s not clear yet whether top talent in the coming decade will work in office buildings, at home, or some other arrangement, what is becoming clear is that when it comes to where that top talent wants to live, New York City is in a stronger position than San Francisco.

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(This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.)

Conor Sen is a Bloomberg Opinion columnist and the founder of Peachtree Creek Investments. He’s been a contributor to the Atlantic and Business Insider and resides in Atlanta.