There are signs of life in the Bay Area economy. - That is what an article in the SF Business Times is saying this week. It is true that there is good news around if you are looking for it. Does this indicate simply a short-lived uptick in the economy (there were several during the Great Depression) or a real recovery? Residential Real Estate is starting to move a bit more. However, Commercial Real Estate sales are slower than ever from what I’m seeing. Further concerning is the number of commercial buildings that are hanging on the edge of foreclosure. If they start to go, we will see a second round of pain for banks and more economic stagnation. My hope is that we are truly coming out of this dark economic season… but let’s not be naive about the reality we face.

Chuck is cutting back its space usage here in San Francisco. Apparently with all of the economic woes they are trying to tighten their belts. They will still have more than 600,000 sf in the Financial District after they sublease all of their 375,000 sf at One Montgomery. The commercial office market is being flooded by sublease space every day, which is driving down rental rates. This is yet another sign that this is the golden moment for tenants. Don't miss out!

Mayor Newsome announced a stimulus plan for San Francisco in order to jumpstart the local stagnant economy. This comes on the heals of the Federal bailout plan that Obama, the Senate and the House are finalizing details on. The local plan will focus on items such as eliminating payroll tax for companies looking to hire as an incentive to businesses to expand. This will help address the unemployment rate that has shot up from 4.4 percent a year ago to approximately 6.6 percent (as of December). For more about Newsome's plan, please click here.

It seems that the vortex formerly known as our economy is sucking even more jobs, houses, companies, and entire industries into oblivion. Today news sources talked about Motorola laying off 4,000 jobs, Autodesk laying off 750 jobs, major banks back begging in Washington, Foreclosures increasing, Apple stock taking a major nosedive on news of Steve Jobs taking medical leave, etc., etc. When will it ever end? It is increasingly clear that things will not be business as usual in many sectors of the economy at the end of this cycle. This isn’t just a hiccup, this is time for major reconstruction of entire industries and the obsolescence of others. Whenever there is a major shakeup like what we see now, it means there is enormous opportunity for creativity and ingenuity. I’m anticipating that we are headed into a new chapter in the history of capitalism. This isn’t all bad… in fact it could be very good. It depends a lot on our attitude and ability to be nimble and flexible. This is a time to check your gut and base your life on something more than financial success. (A good idea all of the time).

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New statistics coming out for the fourth quarter of 2008 show what we all have been seeing and feeling: vacancy rates are increasing pretty rapidly. In fact a new report says that the downtown financial district vacancy rate currently stands at just over 18%. (Read the article about the report here.) This is significant in terms of understanding how rental rates are affected. With supply increased, demand is lowered - putting downward pressure on asking rates. In some cases rates are dropping fast enough that counteroffers from the tenant are actually coming back lower than initial offers. This all goes to say that it is a great time to be a tenant in the marketplace.

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So much went wrong last year with the economy. Many are cautiously hopeful that 2009 will be a better year. The stock market (as of my writing) is up 1.75% today marking a two week high in spite of terrible retail numbers from one of the worst Christmas shopping seasons on record. Additionally, new jobless claims have dropped (see article). Many are hopeful that with less than 3 weeks left of the George Bush regime that things will change with the new administration. The truth is that this recession will be over as soon as people decide that it is over. The key is consumer confidence. Once the collective masses decide to start expanding business, start taking risks, and start to trust each other things will pick up quickly. My own guess is that this won’t happen until the end of 2009.

May God be with you in 2009! Happy New Year!!!

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Commercial Real Estate Brokers are quite aware of how few transactions are occurring in the current marketplace. We feel it in our own pocketbooks. As much as it hurts brokers financially, it may be that we are coming into an extraordinary situation. What is happening in the commercial leasing market right now is setting up some incredible opportunities for tenants. There are very nervous landlords in any direction you throw a stone in San Francisco and the entire Bay Area. Nervous landlords means an edge up in negotiations for tenants. This means better rental rates, more concessions like free rent or tenant improvements, and lots of other perks for tenants.

While it seems counter-intuitive to expand or to step out and take a risk to secure space in this economy, it might be a recipe for success for a business with a solid strategy and a growing market share. Check out this article from SF Business times for more about office space.

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The New York Times has a very interesting and important article regarding what is happening on the commercial side of the foreclosure crisis. Check out this link: NYTIMES ARTICLE

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Being a broker in this current economy keeps me on my toes. Office lease rates are moving pretty quickly (down that is). In some cases, rates have dropped quickly enough that tenants will start negotiations at one price and then come back with a lower number as they hear of other deals that come to light demonstrating more savings to be had. We have seen significant reductions in all Class A rates. Where buildings used to be asking rates in the 50’s - 60’s, they are now asking in the low to mid 40’s (or lower in some cases). It is not difficult to find Class A buildings offering mid 30’s and taking low 30’s deals.

What does all of this mean? It means that tenants have the chance to make a hay day of savings in some sweet spaces. I wouldn’t be surprised to see the rates slip quite a bit more over the next 6-9 months. Landlords beware… don’t trail the market down with your asking rates. You will be better off to be agressive and get a tenant locked into what appears to them to be a great deal (before the floor slips a little lower and tenants demand more).

It became public knowledge a few years ago that there was a movement to get free public Wi-Fi all over San Francisco. Apparently EarthLink and Google both tried to make it a reality. However, there were many snags having to do with financing and city politics that derailed both attempts. A local company called Meraki has continued the battle, but with a different approach. Currently there are portions of the city that are covered by this free public network. It is unclear if or when the entire city will be covered. For an interesting article about free public wi-fi attempts, check out this article in the Wall Street Journal. Also, check out this article about Meraki's recently developed solar powered technology meant to extend free public WiFi.

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