Starboard Commercial Real Estate

Hans Hansson | July 20, 2011

It's official - San Francisco is experiencing an economic boom this year. Driven by growth from technology firms in social networking, gaming and mobile applications, all sectors in real estate are showing nice gains. Today, the overall vacancy in San Francisco office space stands at 7% - down from where it stood at 13% less than a year ago. Retail vacancies have dropped from 9% to 4%; industrial vacancies are down 12% to 9%. Residential sales have seen an improvement up 8% from last year while residential rental market vacancy has now dropped to 5%.

Conventional businesses such as advertising, legal and real estate services are also starting to see the benefits of this boom and are showing signs of marked improvement in their business. At issue is whether this boom is sustainable and if the improvement in business activity will also help other communities in the Bay Area. San Francisco is enjoying a boom because its business growth is creating jobs. Other communities are experiencing improved business activity but this has not led to real creation of jobs as of yet. Until that happens cities such as Oakland and most of the East Bay will continue to see an improved business climate, albeit one that has not yet registered in lower real estate vacancies.

The 'elephant in the room' is the concern of whether or not this growth will be sustainable over the long run. The 'boom and bust' dot-com market of 1998-2001 pulled San Francisco and eventually the country out of a deep recession but was short-lived because it was based on an untested marketplace that eventually blew up when firms did not meet their expectations of growth. Today's market place is similar in that the growth of tech is based upon firms that are not necessarily profitable but have huge potential. As a result there is a lot of speculation occurring, which can lead to a 'bust' market quickly unless conventional businesses can pick up the slack. Again, this means growth of jobs, which so far has not happened yet.

The other big factor for overall growth to continue is to hold down inflationary costs. The government is still reporting low inflationary numbers but the average person on the street is experiencing something different. Costs from basic food items to movie tickets to a cup of coffee have all gone up well past reported inflationary numbers. With most people living from paycheck to paycheck with little savings and reduced credit options, if inflation continues it could very well drive our economy backwards.

For now, San Francisco along with Washington DC and Boston have taken the lead in recovery. Lets hope that our recovery carries the rest of the country as it did during the last bad cycle in the 90's.

Posted 8 years, 1 month ago on July 20, 2011
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