The displaced businesses - Page 2

There's a downside to the real-estate boom on Market Street

Grant's Tobacconists, established in 1849, lost its lease amid rising commercial rents.

"The landlord came to us about three months before our lease was up and said, 'We're going to raise the rent on this entire floor. We're going to take everybody out of here and we're going to put a high tech company in here because we can get 2-3 times the rent.' They were very blunt about it," Selby said.

"The city talks about the revitalization of mid-Market and it's still pretty dismal out there. But the rents are going through the roof. They think we're going to have a great high tech company and they're going to give us 5,000 jobs, so they bend over backwards for these companies and ultimately end up screwing the small businesses that are here in the boom and in the bust."

Now an entire floor of small locally owned businesses is looking for office space — and some may be lost to the city altogether. Selby said she and others are looking east, towards Oakland.



It's the same story up and down the city's major artery as San Francisco faces what John Kilroy, the head of the giant Kilroy Realty Co., told investors recently is the hottest commercial real estate market ever. J.K. Dineen, the Business Times reporter who covers real estate, quoted Kilroy saying, "I've never seen so much visible demand."

Chris Daly, a former San Francisco supervisor who recently shut down his bar, Buck Tavern, at 1655 Market, said the increasing rents made it impossible for him to stay in business.

"In discussions about the new lease for space, the property manager did mention mid-Market revitalization as a reason why the building owner was holding out for what she was holding out for," he told us. "Clearly in the last year, there's been huge speculation on commercial property. There's vacant spaces with asking prices that are pretty ridiculous."

He explained that the neighborhood is no longer friendly to an inexpensive operation: "I wanted to have a community-oriented type of place with reasonable prices. Unfortunately, the rent that was being asked would not allow that kind of format to work."

San Francisco Scooter Centre is on the ground floor of a boxy, three story, red-brick building on 10th Street, two blocks south of Market. Owner Barry Gwin says his business has been booming since the recession hit because scooters are a cost-effective alternative to driving when gas prices increase. Over the eight years, he's been at his current location he's seen other businesses on the block leave and, despite his success, he knows his time will come.

"It sucks," he says. "I know I won't be here in four years."

Others aren't as optimistic. Around the corner is a small nonprofit where an employee says she read in a local paper that her landlord sold her building to a developer who plans to build a hotel. After five years at the same address, her organization is going to have to find somewhere else to go.

In the second quarter of 2012, mid-Market's vacancy rate was above 29 percent — high if you consider the Financial District's vacancy rate is sub 10 percent. But as the end of the year approaches, that vacancy rate has fallen seven points.

John Bozeman of the Building Owners and Managers Association (BOMA) of San Francisco sees the neighborhood's appeal. "If I was trying to lease commercial space, I'd say it was attractive because it's near SoMa which is at capacity or near it," said Bozeman. "If you look at the Twitter headquarters, that's probably the biggest footmark on Market and tech survives around like-minded people."

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