SFO

Final activity for 2008 reveals the following:

Total flights increased by 2.2% to 387,710; international flights declined by 2% to 51,950. International total passenger traffic declined by 0.8% to 9.1 million. On the domestic front, passenger traffic increased by 6.6% to 28.1 million. Year-end total airport traffic increased from 35.8 million in 2007 to 37.4 million in 2008.

New flight activity is increasing at SFO, with AeroMexico beginning daily flights to Mexico City. Virgin America has added two daily flights to Boston and will begin Orange County service in May. United will resume a second daily flight to Frankfurt, a second daily flight to Victoria B.C., and two daily flights to Spokane between March and June. Southwest will start five daily flights to Orange County in May.

Residential Real Estate

According to Dataquick, January sales were the third lowest for that month since 1988. Median home prices have fallen on a year-over-year basis for 14 consecutive months. The median price of a Bay Area home was $300,000 in January, down 9.1 % from $330,000 in December, and down 45.5% from $550,000 in January, 2008. The drop is attributed to the decline in home values, a shift toward more sales in less pricier homes, the uncertainty of the economy, and the continued surge of activities in foreclosed home purchases.

San Francisco's median home price declined by 25.4% from January, 2008, from $744,000 to $582,000, and the highest percentage change was seen in Contra Costa County, which saw prices drop by 52.5%, from $463,000 in 2008 to $220,000. Other Bay Area counties saw similar drops.

Foreclosure sales accounted for more than 50% of January sales in the Bay Area. Resale percentage of sales ranged from 16.4% in San Francisco to 75.2% in Solano County. Foreclosed resale sales in other counties were as follows: Marin 26.2%, San Mateo 34.1%, Santa Clara 45.6%, Napa 48.1%, Alameda 51.9%, Sonoma 55.6%, and Contra Costa 64.4%.

Commercial Real Estate

The turbulence continues in the commercial sector as vacancy numbers increase and rental rates continue the downward trend.

Mid-Quarter numbers for the first quarter 2009 as reported by CB Richard Ellis indicate:

• On average, Class A asking rates have dropped by more than a dollar since the first of the year.
• Average Class A vacancy east of Van Ness Avenue is 13.6%.
• Average Class A asking rental rate east of Van Ness Avenue is $41.90.

Sample Sub-Markets
Financial District vacancy 12.6%-Average Asking Rate $43
South Financial District vacancy 12.2%-Average Asking Rate $42
Mission Bay/China Basin vacancy 24.4%-Average Asking Rate $43
Jackson Square vacancy 12/7%-Average Asking Rate $39

• Direct and Sublease Class A Space: 6.3 million square feet of vacant space in the area east of Van Ness Avenue

The above rental numbers reflect average asking rates. Transactions are occurring at lower rates combined with other concessions. There are many dynamics in the market that will cause market fluctuations in 2009 including: space that has been vacated by failed or failing firms that is not yet in the sublease market, and additional downsizing, dissolving or moving activity.

While we are operating in a time of uncertainty, a few benchmarks from the dot.com period provide perspective. During the dot.com bust, the City had approximately 6 million square feet of sublease space available, today we are approaching 2 million square feet. Overall vacancy was in excess of 21% vs. 13% today. Of course, these numbers will increase over time, but whether they reach the dot.com level is another question.

One last area to watch is the ownership of buildings. A number of owners will face loans that mature this year and will be challenged to find funds to refinance their holdings. Defaults will be a possibility as lenders and borrowers struggle to restructure debt.

For more information please contact

Dennis Conaghan
Executive Director
415.352.8819
Email: dconaghan@sfced.org
www.sfced.org