Starboard Commercial Real Estate

Hans Hansson | November 1, 2005

I recently accompanied a tenant looking for 50,000 square feet of warehouse space in San Francisco on a building tour. This tenant was not looking for anything unusual: five or six docks high, 2,000-3,000 square feet of office space, the rest warehouse space. Yet right now only two spaces in San Francisco fit that requirement. When the tenant expanded the viewing area to Brisbane and South San Francisco, there were five choices. During our tours, we faced the reality that San Francisco and its western neighborhoods have run out of warehouse space.

With San Francisco's growing appetite for expanding residential inventory and the profits that come with that kind of development, warehouse development is being ignored. Rates remain below 75 cents per foot on average-essentially the same as 10 years ago-because service businesses cannot pay more than that for warehouse space.

Yet, without new warehouse development, citizens of San Francisco and San Mateo counties will begin to see dramatic increases in the cost of goods. As Fremont and Hayward become the new warehouse hubs for the entire Bay Area, more trucks must cross the Bay Bridge to deliver goods. This will lead to lower productivity, higher gas costs, and more traffic congestion.

San Francisco and northern San Mateo County have been working to create new industrial zones to support future development and preserve some existing warehouse districts. However, without a profit incentive attached to such development, developers are shying away from these projects. With rents forced to stay under $1.00 per foot, developers cannot afford to build warehouses profitably.

San Francisco must assess existing buildings to determine if they can provide warehouse space. One area that holds promise is Treasure Island. Like the Presidio, the majority of the buildings on Treasure Island were once warehouses. Yet the Presidio no longer wants trucks driving through its streets. Treasure Island, on the other hand, does not face such a predicament. The basic infrastructure is already in place. The buildings would need to be modernized, but most could be reused at less than the cost of tearing them down and building them new. Although crossing the bridge would not be entirely eliminated, the long distance between the far East Bay and San Francisco would be.

Once a decision is made to introduce these warehouses for lease, the next step is to take that process away from the city and to put it into the hands of private real estate brokerage firms that can properly market these products, pay fees to attract broker interest, and streamline the leasing process so that deals can be made quickly.

The firing of Tony Hall counteracts these essential measures. Tony Hall was aggressively working with the Navy to finalize a clean-up plan-a necessity for future development on Treasure Island. However, Mayor Newsom does not want to make Treasure Island a priority right now; he would rather deal with it later. His plan is to "blame the Navy if someone asks"-to say that the Navy is holding up development. But that is not the case.

We need bold regional leadership on this issue immediately. If we do not get it, gas price hikes will look cheap compared to the escalating cost of providing goods without local warehouses in which to store them.
Posted 14 years, 2 months ago on November 1, 2005
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