Fall 09 Mailer
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San Francisco State of the Market 2009 Series Have we hit bottom? News vs. Reality
3Q 2009
For a while now, The San Francisco Business Times has provided us with a few too many grim headlines: “Anemic office market freezes new construction” and “Sale shows San Francisco property values in free fall” and “Tenants shed large chunks of S.F. space”. It’s easy to simplify a complicated issue with fear-mongering headlines, but what do they really mean and how is it affecting your business? Vacancy rates for the Central Business District have gone from 9.1% in 3Q07 to 13.5% in 3Q09, representing a 32.6% increase peak to trough in vacated office space. In comparison, a brief look at the market’s historical performance reminds us that this is far from the most drastic correction we’ve seen. Take for instance, the “Dot Com Bust” when vacancy shot up by more than 96.4%, or the “Savings and Loan Crisis” of the late 80’s when San Francisco CBD vacancies rose from 0.5% to 12.2% (a 96% change). While the headlines might lead you to believe the apocalypse is approaching – or already here – the numbers clearly show that not to be the case. This ordinary market correction indicates how San Francisco’s progressive nature and large pool of diverse industries – “cleantech”, health care, education services, software as a service (SAAS), and cloud computing – has actually helped to insulate the market from other struggling business sectors. A recent PricewaterhouseCoopers publication, “The MoneyTree” (which highlights venture capital investment activity in the United States) reported that “quarterly investment activity increased 17 percent in terms of dollars…driven by several large rounds in the Clean Technology sector.” While it may take some time for this money to flow through traditional real estate channels, it shows that the global venture capital epicenter is quite resilient. Bottom line; there is plenty of opportunity for both landlords and tenants, and though demand is anemic and supply is increasing, it does appear that the worst is behind us.
San Francisco - Central Business District (Overall Rental Rate vs. NASDAQ)
CBD asking rates track the NASDAQ index with a several quarter lag
3Q 2009
For a while now, The San Francisco Business Times has provided us with a few too many grim headlines: “Anemic office market freezes new construction” and “Sale shows San Francisco property values in free fall” and “Tenants shed large chunks of S.F. space”. It’s easy to simplify a complicated issue with fear-mongering headlines, but what do they really mean and how is it affecting your business? Vacancy rates for the Central Business District have gone from 9.1% in 3Q07 to 13.5% in 3Q09, representing a 32.6% increase peak to trough in vacated office space. In comparison, a brief look at the market’s historical performance reminds us that this is far from the most drastic correction we’ve seen. Take for instance, the “Dot Com Bust” when vacancy shot up by more than 96.4%, or the “Savings and Loan Crisis” of the late 80’s when San Francisco CBD vacancies rose from 0.5% to 12.2% (a 96% change). While the headlines might lead you to believe the apocalypse is approaching – or already here – the numbers clearly show that not to be the case. This ordinary market correction indicates how San Francisco’s progressive nature and large pool of diverse industries – “cleantech”, health care, education services, software as a service (SAAS), and cloud computing – has actually helped to insulate the market from other struggling business sectors. A recent PricewaterhouseCoopers publication, “The MoneyTree” (which highlights venture capital investment activity in the United States) reported that “quarterly investment activity increased 17 percent in terms of dollars…driven by several large rounds in the Clean Technology sector.” While it may take some time for this money to flow through traditional real estate channels, it shows that the global venture capital epicenter is quite resilient. Bottom line; there is plenty of opportunity for both landlords and tenants, and though demand is anemic and supply is increasing, it does appear that the worst is behind us.
San Francisco - Central Business District (Overall Rental Rate vs. NASDAQ)
CBD asking rates track the NASDAQ index with a several quarter lag
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