July - August 2009

Commercial Real Estate-A Tenant's Market

The first half of 2009 concluded with continuing downward pressure on asking rates and an increase in vacancy, as slow transaction activity resulted in negative absorption.

Numbers as reported by CB Richard Ellis indicate:

• Asking rates continued to decline, dropping 5.7% to $33.88 from $35.91 in the first quarter.

• Central Business District (CBD) Class A space asking rates decreased from $40 to $37.77, a 5.6% decrease, while the vacancy rate climbed to 13.9%.

• City-wide vacancy rates increased to 14.7%, while the total availability increased to 20%.

• The South Financial District had a 12% vacancy rate, with an average asking rate of $37.50.

These rental rates reflect average asking rates. With landlords facing falling rates and increases in both vacancy and sublease space, they are often willing to negotiate a number of concessions. Terms vary based on multiple factors, including class of property, location, occupancy levels and availability of sublease space.

It is safe to assume that market conditions will remain the same during the next quarter, continuing as an extremely tenant-friendly market.

Cleantech Investments Up

Total cleantech investment nationwide in the second quarter increased 12% above the previous quarter, although investment was down 44% from the same period a year ago. New investment tax credits are playing a major role in making new solar thermal, solar PV and wind projects more viable for utilities.

Source: Cleantech Group LLC . Deloitte LLC

SF Ranks High for Families

A recently-released study from Forbes looked at the 40 most populated US metropolitan areas and ranked San Francisco as the nation's fifth most friendly city for families, behind San Jose, Salt Lake City, Baltimore and Detroit.

While San Francisco has relatively high cost-of-living and housing prices, its median income of $89,175 offsets them. City residents spend an average of 68% of earned income on essentials, leaving the balance for discretionary spending.

On the list of the country's five least family-friendly cities: Virginia Beach, Providence, Las Vegas, San Diego and Cleveland.

SFO Traffic Static

Despite current economic uncertainties, SFO has only experienced slight variations in traffic. Year-to-year comparisons through May 2009 indicate that the number of domestic travelers increased 1.8%, while total airport passengers decreased 1.0%. The number of international travelers decreased 7.7%.

Source: SFO

SF Unemployment Up, But Not Double-Digit

Unemployment rates continue to increase. As of June 2009 San Francisco's unemployment rate was 9.8%, compared to the June 2008 rate of 5.2%. California's unemployment rate for the same period was 11.6%, compared to a national rate of 9.5%. San Francisco's unemployment rate is the 8th lowest in the state, after Marin at 8%, Santa Barbara at 8.2%, Napa at 8.8%, San Mateo at 8.9%, San Luis Obispo at 9%, Orange at 9.2% and Inyo at 9.5%.

Other Bay Area county unemployment rates: Sonoma 10.2%, Santa Clara 11.8%, Solano 11.3%, Alameda 11.4% and Contra Costa 10.7%.

Some additional California unemployment rates to note: Los Angeles 11.4%, Sacramento 11.8% and San Diego 10.1%.

Source: California Employment Development Department.

Hospitality Update: Room Rates, Occupancy Down Sharply

It would be an understatement to say that the hotel industry faces unprecedented challenges in 2009, with pressure on expenses amidst declines in revenue and occupancy stemming from the difficult economy. Some consider recent news regarding loan defaults at San Francisco's Renaissance Stanford Court and Four Seasons Hotel to portend similar problems ahead.

Hotel activity through May 2009 as reported by PKF Consulting indicated the following:

For more information please contact

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