Office leasing in San Francisco by the numbers and by way of the Business Times: 550,000 square feet of negative absorption in the third quarter (including 111,000 square feet in SoMa) and 684,000 square feet of negative absorption for the year.
∙ San Francisco tenants dump office space [Business Times]
But but but but everyone said commercial real estate was going to be OK?! We have such a strong economy here in San Francisco that we were going to be immune from all real estate downturns….
Suckaz!
Mature.
Mature, okay. But correct. Not much hot air left in SF real estate these days.
I’m curious to know if these losses are the result of many small tenants moving or a copule of big tenants moving.
And with the amount of office space coming online in SF’s financial district, is SF likely to replace Charlotte as the low-cost location for financial services? Will we have call centers downtown?
Two words – “payroll tax.” Even a flood of cheaper office space can’t make up for a tax levied on the sin of providing employment.
California and SF in particular should pay close attention to the experiences of Michigan (and Detroit). Detroit was “top of the world” in the mid-1960s, and no one there could ever have foreseen what the future was actually to be.
Heller Ehrman’s addition of 12 vacant floors at 333 Bush is not going to help this statistic either. And no, we’re a long way from locating call centers downtown. In the last downturns after the dot-bomb and during the early 90’s recession, office space in the city became comparatively affordable with the East Bay and Peninsula so that many firms chose to locate in the city as the combination of cheaper rents and the city’s amenities along with access to labor became more attractive.
We considered renting office space in SF, and the payroll tax is not that big a deal — instead of paying tax on gross receipts (common in other nearby cities), you pay tax on gross wages (there may be other SF business taxes I don’t know about).
This tends to be more expensive than gross receipt taxes (especially if you have no sales :)), but it is irrelevant, and certainly no more a sin, except as a demagogic device 🙂
In other news, looks like Heller Ehrman dissolved. According to an article in the seattle PI they financed operations with a bridge loan from receivables as a tax-management device. Maybe that credit line was yanked? Anyone know more? The article in SF business times had even less info.
very interesting stuff about to happen!
is SF likely to replace Charlotte as the low-cost location for financial services?
no way. I don’t think you understand how cheap Charlotte is. I’m in Charlotte fairly often (1-3x a year) and it is cheap cheap cheap. Downtown is very small by the way.
The other problem: commercial RE is overbuilt everywhere, not just SF. That is the next RE domino to fall (that hasn’t yet). So falling SF commercial RE may not entice much because cheaper COL cities are having their commercial RE fall as well.
besides, all the call centers seem to be going overseas anyway.
un/fortunately we need these prices to fall so that we can be globally competitve.
Heller will hurt, but that’s just the beginning.
Just determined: Lehman had far less money than they thought, so investors and such will take it on the chin worse than anyone thought. $400B was lost in the final days. The people to which they owed money will be lucky to see pennies from the dollars they handed over.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aFX.w3QD8.PA&refer=home
WaMu is the same deal: bond holders and owners got royally screwed. They handed Wamu their money and they are never going to see it again. The bank had all the deposits, which the FDIC grabbed and sold off, the holding company had all of the liabilities (e.g. debt) and loans. Those guys are now hung out to dry.
How many hundreds of billions of dollars evaporated today?
As the economy contracts, office space will get cheaper.
dub dub, yeah the departure of 14 IP litigators (a top-notch group) from Heller last week triggered a clause in the firm’s line of credit and resulted in the banks seizing control of accounts receivables and expenses this week.
Surprisingly, Heller’s demise had noting to do with the turmoil in the markets. Some firms that rely on M&A work have gotten slaughtered as no deals are getting done right now. But Heller was not in that category. Heller’s dissolution is quite sad — they were very good for SF. They have excellent lawyers, nearly all of whom should find places fairly quickly (we’ve hired a substantial number already). But the staff is going to have a rough time of it in this market.
wtf type of stupid terminology is “negative absorption”?
JWB – To a physicist, negative absorption means that more radiation is being emitted from a body than is being absorbed – a somewhat unnatural and temporary state. I guess the commercial real estate guys use the same logic to emphasize that an increasing vacancy rate is also an unnatural and temporary occurrence – well, at least until the next commercial real estate crisis hits.
The term negative absorption is not easy of course, but it is the best way to explain the opposite of absorption so it stays. As a commercial real estate agent representing tenants, there are two issues that have not been discussed much, and both affect the numbers and perception.
The first is the calculations behind absorption. Is a building under construction considered “available” when it is completed, or when they start advertising space for lease? The answer is the each brokerage house does it differently. Secondly, if you need space tomorrow then you can only look at vacant space today. But if your lease expires in one year the opportunities increase dramatically. In this situation space that is occupied now is technically listed as available to you if the tenant occupying that space has signed a lease elsewhere. Yet they have not moved out, so why is it a part of the vacancy rate?
These issues have major affects on percentages when you run the numbers, and tenants seeking space should be aware of the differences, and they should analyze their true opportunities.
the thing people tend to overlook when big corporations pull out of a market abruptly is that their leases don’t just go away. When B of A buys Merrill the real estate obligations don’t evaporate – they’re assigned. The landlords that will be hurting in 2009 are the ones who overpaid for office buildings with short term debt that needs to get refinanced. But there are many well capitalized landlords just waiting to swoop in for some bargains. My 2 cents.