Dot-coms accounted for 70% of that space, , but Whitney Cressman researcher Mike Hamasu cautions against overreacting, however. "I think it's something we need to watch and review," he says. "We need to make ourselves aware of this and be informed; the sky is not falling."
NBCi, E-Groups/Yahoo and Doubleclick poured the biggest chunks of sublease space back onto the market. NBCi dumped 158,209 sf at 225 Bush St., E-Groups/Yahoo rid itself of 126,234 sf of space at 555 Market St and Doublclick unloaded 117,000 sf of space at 250 Brannan St. Since the beginning of fourth quarter 2000, nearly 50 companies have put space back onto the San Francisco market. More than 60% of the unloaded space is located in SoMa and the Financial District, according to the study.
The study also shows that vacancy rates for both direct and sublease space will shoot up from 2.16% in third quarter 2000 to more than 8% by the end of March, the most dramatic increase in such a short timeframe since the mid-1980's when vacancy rates leaped from 11% to 16%. The vacancy rate in San Francisco has not seen 8% since 1995. "It's been such a solid market that people forget that it can go soft," adds Hamasu. "Real estate tends to go in seven to 10 year cycles and we've had six years of solid, runaway growth and it's been awhile since we've seen it slow down."
"Many owners have said that this is a long-overdue balance to an overheated market," says Skip Whitney, managing partner for the company. "I don't anticipate the kind of downtowns we have experienced in the past, such as the late 1980's or early 1990's. There's still a lot of money and a lot of tenants in the market. We're in a politically- and geographically-constrained market. I'm optimistic that any space that comes on-line will take three or four years, and that we would be coming out of this by then."
While the surge of new sublease space doesn't hurt landlords immediately, it could harm them in the long run, says Hamasu, who anticipates landlords being even wearier of leasing space to dot-coms. "I think the re-capture clauses in leasing contracts will be more strictly enforced, landlords will scrutinize financial qualifications even more and a letter of credit will have to be stronger." Adds Hamasu, "The only way it could really hurt an owner is if the company went bankrupt. The owner owes money to his creditors and if he doesn't get it, his credit is affected."
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