Industrial Nightmare

How San Francisco planners, in trying to save S.F.'s dwindling industrial base, would hamstring the city's economic future

Comments (0) By Matt Smith Wednesday, Mar 5 2003

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And residents have reminisced about a halcyon era of foghorns and meatpacking districts ever since.

The civic land-use conversation reheated during the mid-1990s as businesses and residents in the Mission, Potrero Hill, and SOMA neighborhoods found office buildings and live-work apartments sprouting beside sweatshops and auto-body repair joints. In 1999 the city Planning Commission responded, passing what were called "interim zoning controls" in the eastern neighborhoods to prevent industrial space from being converted to office or apartment uses. The Board of Supervisors extended the controls, and then, last February, extended them for another year. Now, the city is faced with the choice of either abandoning the controls, extending them yet again, or making some version of them law.

Danny Hellman

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Of course, the San Francisco real estate market has turned upside down since the dot-com boom went bust. South of Market, close to half of all office space is vacant. Real estate analysts don't expect a recovery until 2006.

Still, city planners are advocating drawing a line around significant sections of the SOMA, Mission, and Potrero neighborhoods and declaring those sections all but off-limits to housing and office uses. Not only do urban economists, industrial real estate brokers, and representatives of industrial firms (and the Planning Department's own statistics) suggest that the proposed controls won't keep jobs in San Francisco. Those sources also say that, by limiting options for business and suppressing housing construction, the strictest version of the industrial protection zones being proposed could cause significant economic harm.

Proponents of stringent industrial controls don't merely overlook real-world trends that encourage industrial tenants to leave San Francisco; they're creating a trend of their own. According to brokers, some S.F. industrial buildings stand empty because potential leaseholders fear S.F. regulations will prohibit them from adapting the space to suit unanticipated business changes down the road.

"Anybody that's going to make a capital investment to buy or lease a building is going to need to have an '"out,' a series of options you have in case your business plan doesn't go as you expected," says Chris Harney, an industrial space broker with HC&M Commercial Properties. "What if you rent the building, but you have to sublease, and you have to conform to those basically very, very cumbersome controls that somebody adopted? Any smart business owner says, '"Why the hell rent a building in the Mission if I put my company in more jeopardy?' If I have to sell the building, the pool of people that might rent from me or buy from me is very finite because of these anti-business controls that are in place."

Planning Department treatises on the importance of industrial protection zones suggest the idea that our local economy suffers irreparable damage every time a pipe foundry or rubber mat distributor moves to Hayward in continuation of a decades-old nationwide trend. When companies undertake such a move, the planners claim, jobs are "lost" to San Francisco.

But according to the Planning Department's own survey data, nearly half the employees working in San Francisco light industry commute from outside the city. Of these businesses, nearly one-third employ zeroSan Francisco-based workers.

The entire San Francisco Bay Area is an interconnected economic region that pays little regard to political boundaries. Saying that light-industrial workshops or warehousing concerns must remain in San Francisco to preserve economic vigor is to ignore this basic economic fact. Hayward won't collapse without a financial district, and San Francisco's other businesses will continue to function sans pipe foundries.

Another fact glossed over by proponents of extended industrial zoning for east San Francisco: Many of the warehouses in the area support very few jobs. The Concourse Exhibition Site, an exhibition hall on Brannan Street for example, employs just five people -- on several acres of land near transit lines and the new Mission Bay biotech campus. The owner of the facility fears the city's new Moscone West exhibition hall will make his business obsolete; he'd like to build a 600-unit mixed-use apartment project on the site. And the area and the city need new apartments. But under the proposed zoning controls he would not be able to alter the current category of use from production, distribution, and repair.

These days, if you're a small business, a nonprofit organization, or an independent professional, 2003 is shaping up to be an absolutely glorious time to look for cheap, nicely appointed, conveniently located new digs.

Citywide, one-quarter of all office space, or 17 million square feet, is vacant. Millions more square feet may further glut the market as downsizing firms seek to sublease. And huge amounts of office space planned during the dot-com boom are now under construction.

In the midst of the dot-com bust and a slumping national economy, commercial rents for Class A office space have plummeted from a peak annual average of $77 per square foot a couple of years ago to around $33 today.

In other words, markets function in San Francisco just as they do everywhere else in the world, despite what some may say. As demand for office space falls and supply continues to grow, prices come down.