San Francisco Commercial Real Estate Might Cool Down as Job Market Sees Correction

Posted by Staff Reporter ( on Mar 29, 2016 09:51 AM EDT
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SAN FRANCISCO, CA - APRIL 21: Pedestrians walk by a for lease sign on April 21, 2015 in San Francisco, California. According to a report by Forbes magazine, San Francisco, Oakland and San Jose top the list of worst places in the nation for renters. Bay Area renters are faced with extremely low vacancy rates that have prompted high rents that average over $3,100 for a one bedroom in San Francisco. (Photo : Justin Sullivan/Getty Images)

San Francisco's economy is largely driven by technology market. But as the city is set to experience corrections in the job market, the commercial real estate sector is likely to slow down.

As reported by South China Morning Post, venture-capital investments fall and some tech companies have taken a backseat in hiring new employees and are putting their excess office space in the market. Available space from subleasing in the city saw a 46 percent increase to 1.9 million square feet, the highest level since 2010.

Kenneth Rosen, chairman of the Fisher Centre for Real Estate and Urban Economics at the Haas School of Business at the University of California, Berkeley said that the correction process is in the early stages and it would take years before the full effect can be felt.

"In this tech-driven economy, it is natural to assume that our City by the Bay could be the epicenter of any 'tech-wreck' that may occur due to an overvalued and underperforming industry," commercial real estate company Cushman & Wakefield said in its recent report, per Fortune. "Thus, any tech sublease space that hits the market-a sign that firms have possible sopped growing and have started shrinking-makes a lot of people very nervous."

Meanwhile, the report also noted that the increase in amount of spaces available for subleasing is not entirely a disadvantage. Some companies are renting out their available space to generate some profits out of them while others are actually moving to a bigger space because they are growing. Subleases are also 17 percent lower than direct space, so it also a good news that there are more affordable commercial space available. The move of the companies to look beyond San Francisco, in cheaper areas, can also be "breathing room" that the city needs to be more competitive to second and third-tier markets, Cushman added.

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