Office spike: Tech engine drives rates
April 8, 2011
By J.K. Dineen

Explosive growth of technology companies from South of Market to downtown Mountain View in Silicon Valley is driving a spike in commercial rents not seen since the heady dot-com days more than a decade ago.

... While the optimism among landlords and their representatives is palpable, tenant brokers question whether the jobs numbers really justify rent hikes outside of the most coveted space near Caltrain stations in SoMa or downtown Palo Alto. Studley Executive Vice President Steve Barker argues that while the technology sector is unquestionably booming, the overall market is still weak. The amount of available space — some of it vacant and some still occupied — remains at 18 percent. That means that the economy would have to fill 7 million square feet — roughly 28,000 jobs — to bring vacancy down below 10 percent.

“The bottom line is that until we see a broad-based employment recovery that absorbs multimillions of empty square feet in San Francisco, there is no real estate fundamentals support for a rapid rise in asking rents — tenants just have too many alternatives to choose from,” he said.

Barker said tech companies are stubbornly resisting the marble-lobbied highrises that make up the bulk of the financial district. Those building are still riddled with empty floors as law firms and insurance companies continue to shed space. The law firm Pillsbury Winthrop is looking to downsize from 235,000 square feet to 150,000 square feet. The firm Sedgwick LLP recently shed about 10,000 square feet in their move from One Market St. to 333 Bush St.

Barker said he has been touring an East Bay tenant looking to move into 30,000 square feet in the city. They considered 32 viable options.

“In the history of San Francisco we have never had more people unemployed,”

Barker said. “How can rents possibly go up on a broad basis? If you look at the actual data from an employment standpoint, from a vacancy standpoint, and from an availability standpoint, you can’t justify what is happening.” ...