“CBRE says that downtown San Francisco’s availability rate for office space has now cracked 20 percent. It predicts that the city “will soon pass its all-time availability rate of 20.6 percent.” The brokerage reports that the city saw a 778,000-square-foot net vacant increase in vacant space [in Q2].”
∙ Office space availability tops 20 percent mark [San Francisco Business Times]
Given the loss of major employers in SF – AAA and Schwab some of the most recent and Wells Fargo likely to move more workers out also how does the City ever fill up these vacancies? Ever as in decades.
The few companies which have relocated to SF in recent years have been small employee concerns. Some legal firms here have expanded and taken more space too. But this activity is absorbing just small chunks of space. The large groups of workers needed to fill up all the vacant space are simply not being moved to SF.
Bank of The West – which is headquartered in SF -recently signed the largest lease in the Bay Area to date this year. In San Ramon and with an eye towards consolidating its existing Bay Area employees in one place. Even with all the available and reduced priced office space in SF, Bank of The West didn’t look into consolidating in SF.
Have we seen the last major office building ever built in SF? The only exceptions going forward being possible new construction for government agencies (EPA, PUC) or buildings in the Mission Bay district.
“…how does the City ever fill up these vacancies…”
Oh ye of little faith. An ever-expanding city bureaucracy, non-profits and social services –what passes for an economy in SF– will easily fill the space.
“Oh ye of little faith. An ever-expanding city bureaucracy, non-profits and social services –what passes for an economy in SF– will easily fill the space.”
Aside from health care, government and non-pofits may indeed become the economic base of SF but ain’t no way they can begin to fill up the millions of feet of available space. And, if California ever returns to its senses, government will no longer be a growth industry.
I’d be interested in seeing more than just the vacancy percentage but also the total square feet in historical terms.
I would hypothesize that the overall square feet available has increased over the years. Thus, you may get significant increases in overall square feet vacancies with even a relatively small increase in percentage terms.
anybody know how much square feet was available historically? (maybe in like 1995, 2000, 2005 and present?)
negative absorption will continue for a while. it always does, which is why many of have been watching for this since 2006-2007. (research has shown that in general commercial RE investment lags Residential RE investment by 5 quarters… my GUESS is that this is partly because commercial RE forces lag residential RE forces by about 5 quarters… but that last part is a guess)
commercial RE reabsorption is unlikely to happen until well into the “recovery” if we have a recovery anytime soon. (this remains to be seen, I’ve posted on this before).
good thing we have “green shoots” and these negative commercial RE stories won’t affect our bank balance sheets! (/sarcasm)
It’s a cycle folks – yes, probably a pretty severe one, but nonetheless, just part of the real estate cycle. What will bring absorption back to SF? Two things. 1) Younger and/or culturally aware employees want to live in one of the major urban areas of America & SF is one of them. Eventually rents drop low enough that the urban area is competitive with the suburbs and companies relocated to the city to have better access to that labor pool for a similar cost. 2) Eventually we’re going to realize that fossil fuels are scarce and the costs to go to work in a distant suburb are going to rise enough that it will be a bigger part of an employee’s decision as to who they work for. So eventually having the workplace fairly close to where the employee’s live and having a decent public transpo system to get them there is going to be important. It’s basically the trend toward denser urban styles away from suburban living that will bring back the SF economy eventually.
Vacancies are up nationwide, so without a comparison to how we are doing to the rest of the country, this is not terribly useful data.
Bloomberg says 15.9%
http://www.bloomberg.com/apps/news?pid=20601087&sid=aP7Rhur2u4Z0
In the past, San Francisco’s generally restrictive building policies helped moderate the effect of the boom-bust cycle here. Is this a case where we over built during the boom?
In any case, the lower rents will be a big help to The City in the long run, as this is the number one reason companies relocate away.
In the long run I agree with you Miles.
However, I have found that San Franciscans consistently underestimate how cheap it is to live in a low COL area and have a car. Non-San Franciscans consistently underestimate how expensive it is to have a car.
SF is just so expensive that I doubt it will be cost advantageous to live there anytime soon, even with $5-10/gallon gas.
My bills rose maybe $3000 per YEAR when gas hit $4-plus a gallon (for heating and cooling and increased gas costs)
But SF mortgages would cost me at least that much more PER MONTH. (My mortgage is only around $1750/month, BEFORE mortgage deduction).
eventually energy costs will make places like San Francisco more attractive, but that is a very long way off IMO.
Why put employees in San Francisco and have to pay the 1.5% payroll tax to feed the nonprofit mafia, when you don’t have to elsewhere?
“research has shown that in general commercial RE investment lags Residential RE investment by 5 quarters… my GUESS is that this is partly because commercial RE forces lag residential RE forces by about 5 quarters… but that last part is a guess”
I don’t really understand what this means. What “forces” are you talking about?
Also, don’t you think that the historical “norms” might not apply to the current situation? All this talk of the current “cycle” implies that the ups and downs of the real estate market are like the tides or something. A lot of this “research” amounts to looking at data over the last 20 or 30 years and drawing conclusions from a very limited data set. In my experience, the future is like the past…until it isn’t.
And the really big difference with respect to CRE in San Francisco these days is that the true impact of the internet has really hit, much more than in the dotcom bust. No one has a “secretary” or a “receptionist” anymore….and if we’re all just sitting in front of computers and using phones, there’s not much reason to do it 30 floors up in a glass box that takes an hour to get to for the average non-resident.
Miles,
There is a trend toward denser centers but the Bay Area is so large that mini-centers are emerging. San Ramon/Pleasonton, Walnut Creek, Silicon Valley.
The old days when SF was the center are gone. Most people can’t afford to live in SF so there are in Concord or Dublin or whatever. I think the large majority of higher density and in-filling will occur not in SF but in the surrounding centers.
Between 1997 and 2007 something like 50 million sq ft were added in the Bay Area – only 3 million of which was in SF.
The trend is under way and the density argument – if you still need a super dense hub – makes sense being in Oakland.
The high speed rail line is likely to be delayed a long time given the budget in the state. Peninsula is fighting it.
It will be cheaper and makes more sense to terminate in Oakland. Truly central to the Bay Area. I think ultimately that is what will happen. The super-densities I think will ultimately emerge in Oakland and not SF.
I don’t really understand what this means. What “forces” are you talking about?
It’s because of CRE has larger capacities to absorb changes in sales, and so it responds more slowly, hence the lag.
So, a store will lay off a few people first, at which point RE starts to fall. At some point, the whole store closes, at which point CRE starts to fall. So, there is a lag. On the way up, the remaining stores have to see their sales increase up to capacity, before new stores are opened, but new hiring will occur before then.
Same thing for factories, office space, etc.
As reported, very misleading if not totally incorrect. According to CBRE 2009 Q2 SF office report:
http://www.cbre.com/USA/Research/Local+Reports+Worldwide/globalresearch.htm
vacancies stand at 14.7% citywide. Some submarkets are over 20% (multimedia gulch) while others are under 10% (Rincon).