Real-Estate Deals Abound in Bay Market
Looking for some San Francisco Bayfront real estate? Prices in San Francisco are at their lowest levels in 10 years, but your chances of getting a Bay Area address on the cheap won’t last much longer, according to local real-estate executives.
The dramatic decline in occupancy and lease rates is slowing, according to real-estate services company Grubb & Ellis. But there are still 15 million square feet of space available, and the prices that peaked during the tech boom of the late 1990s have fallen to under $30 per square foot.
“Everybody’s working on their terms,” said Dave Knudson, vice president of marketing for apparel-industry software provider Freeborders Inc. “There’s been a dramatic decline in prices, and no one wants to be left out.”
Freeborders, based at California and Sansome streets in San Francisco, is considering negotiating a new lease or finding a new location, said Knudson. The landlords around town have been conciliatory in their dealings with tenants because they do not want to lose them, he added.
San Francisco and the Silicon Valley experienced the two largest drops in commercial real-estate rental rates in the country during 2002, according to a Cushman & Wakefeld Healey & Baker report. Leases in San Francisco plummeted 21 percent, and those in the Silicon Valley fell 26 percent. By the end of the fourth quarter, rates averaged $27 per square foot.
Retail vacancies in San Francisco have also fallen 10 to 12 percent. With the exception of a massive Bloomingdale’s project that has been years in the making, San Francisco’s downtown real estate has been touchand- go. The effects of the tech industry bust, terrorism threats and the war in Iraq have store fronts at Prada and Bally of Switzerland sitting vacant. Jil Sander has left, and others—such as FAO Schwarz, which is in Chapter 11 bankruptcy protection—are also leaving town. Luxury goods giant LVMH will vacate its prominent Stockton Street address this summer. Ironically, a tech company, Apple Computers, is reportedly leasing the space. But that appears to be an aberration as mostly other industries, such as biotechnology, are picking up the slack for the city’s office spaces.
Other San Francisco stalwarts, including Gap, have shown signs of improvement after two years of business declines, but the current U.S. war with Iraq may cramp any idea of a rebound for them.
Grubb & Ellis said in its 2002 report there is a “flight to quality” as companies start taking advantage of the area’s low rates. The company also reported that the rates of increase in vacancies and decrease in lease rents have slowed, which encourages real-estate watchers.
“I think prices are starting to stabilize,” said David LaRico of Marin County, Calif.- based Julia Duren Leathergoods. “We’re in Marin, and prices are not going up and they’re not going down.”
Elsewhere, there are still deals to be had. Apparel manufacturers usually head to outlying sub-markets such as San Mateo or Solano Counties—where prices are in the more manageable $2- to $3-per-square-foot range—for their distribution, warehousing and office-space needs. In San Mateo County, where Rainbeau Clothing Co. just secured 30,000 square feet, prices have fallen to five-year lows of $2.22 for class-A office space and to $1.82 for class B, according to Grubb & Ellis. Bebe Stores also leased about 60,000 square feet of warehouse space in Benicia, Calif., south of San Francisco in 2001. —Robert McAllister
