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Los Angeles Commercial Real Estate In-depth
San Francisco commercial real estate is best know for its eclectic office space south of Market Street (SOMA), its class A office space in the “Financial District”, and its large retail shopping malls and districts thriving on the area’s active tourism and waterfront. San Francisco also has a large commercial real estate building...
Los Angeles Commercial Real Estate In-depth
San Francisco commercial real estate is best know for its eclectic office space south of Market Street (SOMA), its class A office space in the “Financial District”, and its large retail shopping malls and districts thriving on the area’s active tourism and waterfront. San Francisco also has a large commercial real estate building base south of the city where many industrial and warehouse buildings house the wares of the area’s large seaport just a few miles away in Oakland, California.
San Francisco, with its base of young people, close proximity to Silicon Valley to the south and the venture capital community in nearby Menlo Park, developed a large technology base of tenants starting in 1999. Many of the area’s young computer engineers prefer to live in San Francisco and as a result it is common to see many large technology companies have offices in San Francisco as well as a large contingent of technology startups. When the tech market is strong it is common that commercial real estate rents increase for San Francisco’s office sector, and when technology is in a contraction, rents can drop dramatically to move the flood of sublease space hitting the market seemingly all at once.
Since the beginning of 2009 approximately 1.2 million square feet has been added to bring the vacancy rate up to 14% for offer space. Over half of this commercial office space came available in Q2, 2009 alone bringing the total available amount of office space available in San Francisco to 11.7 million square feet. This marks the forth consecutive quarter of negative net office space absorption meaning that demand for commercial real estate in San Francisco fell well short of supply. Much of the new space coming online is for office sublease space offered by San Francisco’s technology tenants as well as law firms and financial services firms plagued by the global recession. Total sublease space for commercial office buildings essentially tripled from Q2, 2008 to Q2, 2009 with 1.4 million square feet of office space available for sublease. Given that much of this space is still technically occupied by would be sublessors but barely used, there is large and growing “shadow vacancy” factor that could suppress any recovery for San Francisco commercial real estate for another 24 to 36 months.
With the technology meltdown starting in 2002 many surviving companies and returning entrepreneurs worked to shed their “dot com” origins by moving into more professional office settings. San Francisco commercial real estate has felt this shift more so than any other city in California with the bulk of leasing activity today taking place in the Financial District. There are still a handful of technology companies preferring more humble surroundings and loft styled office space, however, there has been a recent flight to quality where many tenants in 2009 are taking advantage of beautiful class A office buildings offering unbelievable deals. As a result, the Financial District in San Francisco has snagged most of the commercial real estate transactions available.
Compared to other office markets around the United States, commercial real estate in San Francisco is relatively healthy. This is in part due to the fact that much of the construction boom in San Francisco, largely for new commercial high rise office buildings, took place from 2003 – 2006. There hasn’t been that much new office space for lease in San Francisco coming online in recent months, just over 200,000 square feet. Because of this some industry participants believe that San Francisco may be one of the first cities to see the benefit of any national recovery and stabilize its negative net absorption of commercial real estate well before other major metropolitan markets that have been besieged by new construction projects of commercial space.