Feels like 1998 All Over Again
Mar 16, 2011
The San Francisco office market is seeing tremendous improvement in activity in a very short period of time. Tech is leading the way to our recovery as it did during the mid 90's recovery. Then-like now-the country was faced with a serious recession that destabilized property values making it very difficult to find lending opportunities, which shut down our marketplace. In addition to the country's overall woes, San Francisco's market was also hit with the devastating effects of the 1989 earthquake, which chased away the remaining few investors that included San Francisco in their targeted investment markets.
As the market slowly began to recover in 1995-1996, a new industry known as the World Wide Web began to take hold in San Francisco. As an industry, it spoke to the employment base located in the city: Young, highly educated, single and unconventional in overall life style. The World Wide Web marketplace was about inventing, creating and speculating in a new direction of lifestyle and how we would work in the future. By 1998 the market was beginning to catch real fire as investors began to pour large investment dollars into new ventures exploring untested new markets with new technology that also was untested. San Francisco's office market saw a major explosion of historically high vacancy rates in the 90's (averaging in the high teens) to drop to less than 2% by the start of year 2000.
After experiencing that marketplace as a commercial real estate broker, I feel we have potentially returned to a new dynamic marketplace that could take us to similar results. This market is similar yet different. This market is being driven by three tech sectors: Social networking, gaming and mobile applications. Unlike the dot.com boom, this market is rooted in many ways to business and lifestyle and therefore can be perceived as more stable and longer lasting. However, the start-ups in these sectors are not yet enjoying the large investments by venture capitalists or Wall Street. Startups are given a much shorter financial chain to prove their product is viable and potentially profitable. Unlike the dot.com market where products were developed first and then the product searched for a profit vehicle, these new products need to first prove their worth. Next, these new product sectors to not require the same amount of people that the previous dot.com market required. Computers, design programs and speed have changed dramatically, reducing the need for large support that required hiring large numbers of employees. Also, with the growth of outsourcing a lot of what is being created is started here but built in other countries, which was not the norm in 1998.
What I can tell you is that tours are up. Listings that I have had that were lucky to see one to two tours a month are now seeing two tours a day. If I am correct and this market explodes in San Francisco, watch for its positive effect on the rest of the country.
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Written by: Hans Hansson
Hans Hansson is President of Starboard TCN Worldwide Real Estate Services as well as a member of the Board of Directors for TCN Worldwide Real Estate. Hans has been an active broker for over 26 years in the San Francisco Bay Area and specializes in office leasing and investments. If you have any questions or comments please email firstname.lastname@example.org or call him at (415) 765-6897. You may also check out his website, http://www.commercialspacefinder.com/.