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SAN FRANCISCO — The dot-com meltdown is flooding the San Francisco office market with vacant space and lowering average rents in the city’s main business district for the first time in more than two years, according to a new real estate study. 

Rents for prime downtown San Francisco office space averaged $74.16 per square foot in the first quarter, down 7.5 percent from an average of $80.16 per square foot in the fourth quarter, according to the Berkeley-based Rosen Consulting Group. 

It’s the first quarter-to-quarter rent decline for so-called Class A space in San Francisco’s financial district since the end of 1998, when landlords charged an average of $47.75 per square foot.  

Despite the decline, average Class A rents for new San Francisco financial district leases remain 9 percent higher than a year ago. 

San Francisco’s office rents are still the highest in the country. New York’s midtown Manhattan office market is the second most expensive at $67.75 per square foot, according to Cushman & Wakefield, a commercial real estate brokerage that supplied the data used in Rosen’s report. 

Internet companies accounted for 77 percent of the 3 million square feet returned to the San Francisco office market between October 2000 and February 2001, the report said. 

In an unusual step, Cushman & Wakefield distanced itself from Rosen’s report, which the brokerage called “premature.”  

The firm said it planned to release a more extensive report Thursday comparing San Francisco to other cites facing an economic downturn. 

The Rosen report portrays San Francisco as a city in the early stages of an economic hangover. 

Propelled by a wave of venture capital-backed Internet start-ups, the city’s Class A office rents soared from $31.42 per square foot in early 1997. 

San Francisco added about 170,000 new jobs during the last four years, with much of the work tied to the Internet. Rosen estimates that Internet companies accounted for as much as 60 percent of all San Francisco office leases signed from January 1999 through September 2000. 

The leasing frenzy left the Class A vacancy rate the shakeout is painful for the workers and investors involved, the decline in office rents is probably a healthy development, said San Francisco Bay area economist Tapan Munroe. 

“Real estate prices were becoming part of the whole Internet bubble,” he said. 

“The prices were getting so high that it was becoming a negative factor in the growth of new businesses in San Francisco.” 

The demise of Internet companies and a broader slowdown in the technology industry that drives the Bay area economy still hasn’t brought down the region’s home prices. 

A mid-priced Bay area home sold for $393,000 in February, up 2 percent from the prior month and an 18 percent increase from the same time last year, according to Dataquick Information Services.  

In San Francisco, the median price was $524,000 in February, a 5 percent increase from January and up 25 percent from the prior year. 

On The Net: 

http://www.rosenconsulting.com