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Some strange rumblings in the SF economy

May 28, 2015

by Tim Redmond : 48hills – excerpt

Too much office space — or too little? Is the rent too damn high even for tech workers? Is it time to take a little break here?

MAY 27, 2015 – I keep hearing strange rumblings these days about the San Francisco economy, stuff that ought to be grounds for at least some discussion in the public sphere.

For one thing, while the mayor and some in the tech industry complain about a lack of office space in the city (and developers are converting industrial space to offices, often without permits, as quickly as they can), the SF Business Times is reporting that there’s a glut of space coming on the market as existing companies either consolidate or decide SF is too expensive and go somewhere else.

As more companies ditch their office spaces, it raises alarms for a potential commercial real estate downturn, as I detailed last month. Those alarms may blare more loudly now that these potential listings put sublease space at about 1.7 million square feet, San Francisco’s highest total since the tail end of the recession in the last quarter of 2009.

Me, I don’t see a commercial real-estate downturn as any cause for alarm; cheaper office space might mean less of a land grab for what is now Production, Distribution, and Repair space.

But it’s worth talking about in light of the fact that I’m hearing lots of talk about the Prop. M development limits and how they might “stunt” the job market.

here’s too much office space? No, there’s not enough. Whatever: Prop. M brought an immense amount of sanity to the commercial office market in San Francisco. At the time it passed, in 1986, office towers were springing up everywhere, driving out other possible uses for scarce space (like, for example, housing) – not because there was such a demand for offices but because a glut of investment capital was fueling an unsustainable boom.

The market eventually crashed, and cities that didn’t limit office development (like Houston) were hammered. SF survived better than most because we made sure all of our economic eggs weren’t in a single basket.

And if we hit the Prop. M cap, and things have to slow down a bit, then they ought to slow down. It’s a good early warning system of a bubble out of control.

And so, maybe, is this(more)

I call it too much too soon. Whenever that condition arises you always have a correction. In this case it could be that so many people are fed up with traffic they are moving out. Or it could be the rising rents are driving them to reason. I talked to a lot of people at Carnaval and most of them are no longer living in the city. They left because of rising rents. It is no longer worth it to stay is the message I got.

RELATED:

Has San Fran Commercial Space Bubble Bursting? Schwab Ending 327,000 Sq. Ft. Lease

San Fran is a booming town—apartments go for $4,000 or more. It has the most expensive commercial property and homes. This is a city that loves taxes, regulations and even has a $15an hour minimum wage that is being implemented—even though 14,200 people will lose their jobs and the cost of products and services will go up. To survive San Fran you need to be either filthy rich or on welfare—the middle class has left.

Now we are seeing large firms sub-leasing their footage and either consolidating or moving out. We need to watch to see if this is an opening trend or just an anomaly.

“A Charles Schwab (NYSE: SCHW) spokesman told the Business Times that it is looking to sublease its 327,000 square feet at 215 Fremont St. so it can eventually consolidate into one building at 211 Main St.

Square just put 50,000 square feet on the market from its 1455 Market St. space, Bloomberg reported. That would reduce Square’s leased space there by one-fifth and comes soon after neighboring tenant Rocket Fuel Inc. also put a big block of space on the market after revenue and hiring slowed.

As more companies ditch their office spaces, it raises alarms for a potential commercial real estate downturn, as I detailed last month. Those alarms may blare more loudly now that these potential listings put sublease space at about 1.7 million square feet, San Francisco’s highest total since the tail end of the recession in the last quarter of 2009.”… (more)

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