January figures from broker Whitney-Cressman show the downtown area with a commercial vacancy rate of 5 percent, up from 2.9 percent last month, which itself was around double from the month before.
Sure, there are some economic indicators that suggest California and the Bay Area are suffering the current economic softening blithely -- the state gained 53,100 jobs last month, for instance -- but if there were ever a portent of ill tidings, the fact that tenants are stampeding out of the San Francisco Financial District might just count as one.
Fred Harper
Related Content
More About
Thank goodness we've got a fresh crop of bright-eyed supervisors, ready to respond at a moment's notice to changing economic winds, no?
Well, not exactly.
According to Tom Ammiano, the board will continue to focus on legislating the no-growth principles of Proposition L, which sought to curb office construction downtown and elsewhere.
That's right, in an environment where demand for new office construction has faded completely from view, supervisors plan to march on with their campaign to "protect the neighborhoods" by confining now-phantom office growth.
"We're talking about a downturn that's been so short when you compare it to the last five years that I don't think we have to put aside the discussion around Prop. L and move on to other business," says new supe Matt Gonzalez. "There could be strong evidence of something that could be long term, or it could be short term. We only have two or three months of empirical data. It's such a short time frame that the smarter approach is to, well, keep doing the business we need to do around Prop. L and impose these safeguards."
Safeguards against new office space in this market? What's next? Life jackets on Nob Hill?
The city's increasingly hollow office market does, however, bring up a real -- as opposed to meaningless and demagogic -- issue for our supervisors to chew on.
To wit: Is the city reallygoing to accept a fivefold increase in the rent it pays to house its computer systems?
One Market Plaza, the highfalutin office tower where the city stores its computer servers, just slapped taxpayers with a $1.2 million-a-year rent increase. That's $80 per square foot to house the kind of computer equipment many San Francisco companies run remotely in places like Fresno, so that theymight save real estate coin.
Now, I'll grant $80 per square foot may have been fair market value four months ago -- but all kinds of stupid, crazy, computer-related things passed for normal four months ago. Times have changed; dot-com nuttiness is over. There now exists 70 million square feet of empty commercial space downtown, for which real estate agents are asking an average of $58 per square foot -- without finding takers.
The city finds itself in a particularly sweet situation at One Market Plaza. That building's 42-story tower is now more than 15 percent vacant, or three times the overall downtown rate. Not that individual building vacancies usually dictate market rents, but the fact that the building is struggling might be a nice factoid for taxpayers to bring to the bargaining table.
The building's owner, Equity Office Properties Trust, says publicly that its space rents at $90 per square foot, and it likes to tout the fact that Microsoft inked a $115-per-square-foot deal for a penthouse office suite late last year. But this is no penthouse suite, it's a computer room; and deals signed during 2000 are irrelevant during a critical-velocity free fall.
"You're looking at leases in an extremely volatile market," says Aaron Peskin, the only supervisor I talked to who acknowledges that the real estate collapse might alter the board's priorities. "From where I'm sitting right now, I don't think One Market Plaza can justify those dollars."
(1) "The Ballad of Jed Clampett," theme song toThe Beverly Hillbillies, lyrics and music by Paul Henning.
