With office rents in San Francisco up 81 percent since 2010 and approaching an average of $60 per square foot, a mark only once before observed in San Francisco – during the “tech boom” of 2000, San Francisco’s Planning Department is holding proposals for over 9 million square feet of office space to be built in the city.
That’s a pipeline of “three Embarcadero Centers or 20 Transamerica Pyramids” worth of proposed development. And that’s on top of over 12 million square feet of office space which is currently under construction in the city or has already been approved.
The problem, as reported by J.K. Dineen at the Chronicle: Proposition M.
Approved by San Francisco voters in 1986, Proposition M established an annual cap on the amount of office space that’s allowed to be approved for development. And while the annual allocation of 875,000 square feet can be banked in a down market, the current balance in the account which can be allocated is 1.9 million square feet, roughly one-fifth the amount of space which has been proposed.
Next month, San Francisco’s Planning Commission will to begin developing a framework by which to decide which proposals should be approved and which will be denied. And while design has played a part in past allocations, San Francisco Planning Director John Rahaim plans to “urge the commission against basing decisions on aesthetics” and focus on more “objective” measures.
San Francisco’s cap on commercial development could soon exacerbate the sharp rise in commercial rents, drive more companies out of the city, and limit the city’s current boom. That being said, it could also limit a bust.
“”We don’t know how long this bubble will last, but we know what happened to the last one. It tanked hard,” [said developer, John Elberling]. “There is always way too much optimism about demand when you are in a boom – everyone acts as if it will go on forever. There is always the correction.””