Landlords offer prizes as S.F. office market dives

By Margie Mason Associated Press Writer
Monday May 14, 2001

Property owners going from powerful to desperate in economic downturn 


SAN FRANCISCO – During the height of the dot-com craze, some landlords here charged more than $100 a square foot for office space and demanded choice stock options in technology companies. Now, many of those options are worthless, and it’s the landlords’ turn to beg. 

Some desperate property owners are offering golf clubs, expensive tech gadgets and even luxury cars to brokers who can fill spaces suddenly vacated by technology companies that once paid Manhattan-style rents. 

Commercial real estate vacancies in San Francisco jumped more than doubled in the first quarter of 2001 compared to the previous quarter. Available space increased from 3.7 million to 8.7 million square feet, sending some companies scrambling to sublet space to help defray costs. 

Internet companies accounted for 77 percent of the space returned to the San Francisco office market between October 2000 and February 2001, according to CoStar Group Inc., which provides information services to the commercial real estate industry. 

The market flip-flop stands out in the city’s South-of-Market area. “For Rent” and “For Lease” signs are visible in every direction on blocks where dot-coms paid high prices for even low-grade warehouse space last year. 

“The market has dived, and I’ve seen a blood bath,” said Mike Mayeri of Cityfeet.com, a Web site that posts vacant commercial real estate for eight Northern California counties. “We’re running out of people to go broke. Sooner or later you flush it out of your system. I probably get 30 new e-mails every day with empty spaces.” 

Dan Mihalovich, of Mihalovich Partners commercial real estate services firm, says he regularly gets invited to open houses where prizes are raffled off. 

Some city residents couldn’t be happier. While the dot-com boom brought riches to landlords and companies, exploding rents forced many longtime tenants from their offices and work spaces. 

After receiving eviction notices, the 22 renters at the Grant Building on Market Street began a six-month campaign last fall to save their square footage. 

A collage of artists, writers and nonprofits took on Seligman & Associates, their Southfield, Mich., landlord, and eventually got what they wanted — new leases were signed in March. 

Seligman officials did not return a telephone call seeking comment. 

“The original plan was to raise rent about 350 percent,” said Chris Carlsson, executive director of Shaping San Francisco, writer/researcher multimedia producer of San Francisco history. “They thought it was just ‘Go, go, go frenzy’ and all these dot-coms were just dying to get in here, but it never materialized during the boom.” 

Although their rents did increase, the tenants were able to stay, an outcome they say is symbolic of a new beginning in the city. 

“We thought it would be the first victory or the last defeat,” said Jim Brook, a Grant Building poet, translator and editor. “Now I think it’s the first victory.” 

But Sharky Laguana, a singer and guitarist, said many musicians are still struggling to find practice space. 

“Even if (rents) were to drop like 50 percent, it’s still out of range of what musicians can pay,” he said. 

At $62 per square foot, San Francisco had the nation’s highest prime office rents in the first quarter, according to the nationwide commercial real estate company Cushman & Wakefield. New York’s midtown Manhattan market is the second most expensive at $57 per square foot, the report said. 

San Francisco’s vacancy rate is projected to hit 13.6 million square feet in the next year, a further increase of more than 50 percent, according to CoStar. March 2000 was the tightest market at about 2 million square feet of available space. 

Mayeri’s Cityfeet.com, which opened in San Francisco last June, has watched the market and its players go from shortage to surplus, and landlords post more ads every day. 

“It was the heyday,” Mayeri said. “It was the gold rush, but it seems as though the tides have changed.” 


Here’s a look at current vacancy rates in San Francisco’s commercial real estate market, and space expected to be open within the next year. 

—Office space currently vacant: 8.57 million square feet, up 232 percent from 3.69 million three months ago. 

—Expected office space available one year from now: 13.59 million square feet, up 69 percent from 8.03 million three months ago. 

Source: The CoStar Group, Inc. 


—Top five U.S. cities with the overall highest asking rents per square foot as of the first quarter 2001: 

1. San Francisco $62.04 

2. Midtown New York $56.98 

3. Boston $53.33 

4. San Jose $50.64 

5. Downtown New York $43.73 


—Top five U.S. cities with least amount of vacant office space as of the first quarter 2001: Numbers refer to percentage of available space. 

1. Downtown San Jose 2.4 percent 

2. Washington, D.C. 4.3 percent 

3. Downtown New York 4.8 percent 

4. Midtown New York 4.8 percent 

5. Boston 5.3 percent 

6. Midtown South New York 5.8 percent 

7. Portland, Ore. 6.1 percent 

8. San Francisco 6.7 percent 

Source: Cushman & Wakefield