Trends in office real estate (vacancy and lease rates) provide insight into changes in investment and economic activity in a neighborhood[i]. How these changes impact a neighborhood and who benefits can vary greatly and is often contingent on a host of other neighborhood factors. For example, as office space availability becomes tighter and lease rates increase, there may be increases in the level of investment to improve property conditions, the number jobs opportunities, and employees frequenting neighborhood stores. Additional business activity in neighborhoods can also generate tax revenue through gross receipts taxes, which can in turn be used for civic improvements. Conversely, office space for non-profit organizations and small community businesses providing affordable services to residents may become unaffordable, forcing their closure or relocation outside of the area[ii]. Another consideration is whether the new jobs entering into the neighborhood will provide opportunities for employment to existing residents in the area.
Between 2011 and 2015, the amount of office/flex square footage within the CMTL boundary decreased by 330,078 square feet (by 2.6%), while citywide it increased by 1,720,266 square feet (by 1.4%). During that same time, the office/flex space availability rate declined significantly – from 22% to 2% in the CMTL area and from 14% to 6% citywide. This decline in availability coincided with a 58% increase city wide in office/flex space lease rates and a 73% increase in the CMTL area. While prices seemed to increase linearly citywide, the majority of the price increase in the CMTL area seemed to occur between 2013 and 2015, even though vacancy rates had already been halved.
CoStar data from the Department of Real Estate, 2011-2015.
[i] Juan Carlos Cancino, Paul Chasan, Amy Cohen, Ellyn Parker, Alexander Quinn, Sarah Ritter, Kelly Rytel, Marlo Sandler, and Joaquin Torres. “Central Market/ Tenderloin Strategy.” San Francisco, CA: San Francisco Office of Economic and Workforce Development, May 2015.
[ii] Olivia LaVecchia, and Stacy Mitchell. “Affordable Space: How Rising Commercial Rents Are Threatening Independent Businesses, and What Cities Are Doing About It.” Washington, DC: Institute for Local Self-Reliance, April 2016. https://ilsr.org/about-the-institute-for-local-self-reliance/