Magazine article Journal of Property Management

Frisco Blues: The San Francisco Real Estate Market Has Seen Better Days. (Metroscope)

Magazine article Journal of Property Management

Frisco Blues: The San Francisco Real Estate Market Has Seen Better Days. (Metroscope)

Article excerpt

While no sector of real estate has remained unscathed by the current economic climate, San Francisco serves as a model of what the bottom of the market looks like. The dot com bust left the once red hot San Francisco market in tatters. In addition, the stock marker and September 11 attacks left all sectors, with the exception of single- family homes, reeling.

"While there are cycles in real estate, this one is unusual because of September 11 and the stock market drop off," said Ron Harris, CPM[R], CEO at Cantrell, Harris & Associates, AMO[R]. "Right now, it's just one of those weird times when nobody knows exactly what to do."

"It will probably take another three or four years for the market to get back to where it was," Harris said.

While property managers use concessions such as parking to sweeten the deal for potential tenants, in San Francisco the trend is to drop rent rates. According to a report by the CAC Group, in the last year alone CBD rental rates have been cut in half, while vacancy rates doubled.

A TRI Commercial Real Estate Services, Inc. trend report stated an additional 1.5 million square feet of space appeared on the market in the last quarter of 2001. Thus, for the first time since late 1996, rental rates dipped below $30.

"Even six months ago, 'For Rent' signs were rare," said Gene Burger, CPM, president of Eugene Burger Management Corp., AMO.

Burger said increased security measures, such as restricted parking in many CBD high-rise buildings, have made it impossible to do add-ons.

"The beefed-up security cuts down on NOI because parking income in San Francisco is very high," Burger said. "We've never had to deal with this problem before."

He said many owners are looking to acquire buildings with lower prices, rather than diversify their portfolios.

A recent report by Hendricks & Partners predicts employment growth by the end of this year will lead to steady increases for 2003. …

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