"The overall vacancy rate in the San Jose area is about 4.7%," says Friedman, "so it's not exactly what I would call an open market. There is still several million square feet of sublease space available, but the idea of excess is just not the case."
Ritchie Commercial Real Estate owner Mark Ritchie says the market is definitely softening, but the sky is not yet falling. "I guess the $64-trillion dollar question is whether or not the market is going to drop," says Ritchie. "There is definitely an impact in the market and there has been a major correction in commercial rents but the business isn't gone yet."
Ritchie believes that there has been a greater impact of the markets in San Francisco and the Palo Alto areas where commercial rents are much higher than those in the Silicon Valley. "I do believe there will be a suspension by summer's end," says Ritchie. "What you are seeing right now is the law of real estate physics: the higher the rents the faster the fall."
Indeed, a report released last week by Rosen Consulting Group shows annual rents for class A space in the financial district falling only slightly to $74.16 per sf in the first quarter of 2000 from $80.16 in the fourth quarter of 2000. But for the so-called class B space where dot-coms like to locate to save a little money, vacancies have more than doubled, pushing rents in places like the SoMa district--where vacancy has hit 16.5%-- to $55.32 per sf in the first quarter from a high of $75 per sf in the third quarter of last year.
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