Tech Bubble 2.0

Ah, but here we go again

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OPINION We all remember the first dot-com bubble, right? Web technology start-ups flocked to San Francisco in the late 1990s. Thousands of would-be entrepreneurs and techies filled up the city. Gentrification of Central City neighborhoods accelerated sharply. Apartment rents jumped, followed by the condo boom. Demand for commercial office space, especially South of Market, quickly grew red-hot. Rents zoomed, and office developers rushed dozens of proposed new projects forward.

The leaders of Mayor Willie Brown's gutless Planning Department rubber-stamped all they could, and decried the annual limit imposed on their approvals by the 1986 community-activist-sponsored Proposition M ballot measure.

The activists and the mayor put two competing measures on the November 2000 ballot in response. Both lost, but the progressive slate for the Board of Supervisors swept that election, defeating most of the mayor's candidates.

And then Tech Bubble 1.0 popped. The peak year was 2000. The big dot-com bust, 9/11, and finally the Great Recession all followed.

The city's office market crashed. Some new office buildings were foreclosed by their lenders. Many approved office developments went unbuilt. Overall office market vacancies approached 20 percent by 2010.

Ah, but here we go again — Tech Bubble 2.0! A new wave of recent technology industry start-ups — like Twitter and Yelp — are joining the growing survivors of Bubble Number 1 — like Salesforce. And San Francisco has become a premiere national media venue for the tech industry.

Thousands of would-be entrepreneurs and techies are again filling up the city. Apartment rents are going through the roof. Gentrification of Central City neighborhoods is accelerating even faster. Demand for commercial office space, still in SoMa, is red-hot again.

But by 2011 so much vacant space was on the market, and so many approved buildings were waiting for anchor tenants to start construction, that there has been room for them all so far. Several new buildings got underway. Mayor Ed Lee strategically took advantage of this market boom to target economic expansion to the Central Market District, the last disinvested zone of San Francisco's Downtown.

Even today though, city office vacancies still exceed 5 percent. And according to the most recent Planning Department report, more than a dozen already-approved new buildings, totaling more than 4.5 million square feet, are waiting to start construction in the Transbay Transit District, South of Market, and Mission Bay. Another 5 million feet of office space is proposed for more than a dozen more pipeline projects for those areas. Plus another 2.5 million feet is planned for projects on Port property — including the San Francisco Giant's huge project — that are not even on the Planning Department's list yet!

How does this total of 12 million square feet of pending new San Francisco office buildings compare to historic demand? Going back to 1986, the amount of new office space actually built — true long-term market demand through the boom/bust business cycles — averages out to about only 750,000 square feet a year. The city's old-school corporate headquarters dramatically downsized or even moved out of San Francisco — like Chevron and Bank of America — and that's still ongoing. The new tech industry is mostly replacing them. So these 30+ identifiable current projects would provide a 16-year supply of office space at historic rates.

But even in the face of this evident market glut of future office buildings, the usual civic development hypsters are once again muttering about gutting Proposition M, and radically upzoning Soma for even greater office expansion. Is that who City Hall will listen to this time too?

Bubble? What Bubble? [Pop!]

John Elberling is executive director of the Tenants and Owners Development Corporation.

Comments

whenever a particular industry is doing well.

So while it is possible with hindsight to say the dotcom thing was soemthing of a bubble, that doesn't mean it is always a bubble. Companies like IBM and HP have been around since the middle of the last century. MicroSoft has been a leader for over 20 years, along with Apple. Even Google is 15 years old or more.

And we've even had a non-tech bubble recently - real estate. So the chance are that the next bubble will not be tech at all.

San Francisco may not be Silicon Valley, but it's in the same urban area, and they can both be considered neighborhoods of the Bay Area with different businesses and cultures, just as Manhattan, Hoboken, Westchester and Brooklyn are different but all part of the same megalopolis.

And SF would be in much worse financial shape but for the overflow here from Silicon Valley. It's a major driver of prosperity in Sf.

Posted by Guest on Apr. 10, 2013 @ 10:49 am

Tech really hasn't participated in the rally at all, with Apple losing a third over the last few months, while MSoft, Intel and Cisco hase been mired in mediocer performance for years now.

Wherever the bubble is, it's not in tech.

Posted by Guest on Apr. 10, 2013 @ 11:01 am

The entire U.S. economy is a bubble.
And by "bubble," I mean "unsustainable."

Posted by TrollKiller on Apr. 10, 2013 @ 12:56 pm

That's a long time for a mere bubble.

Anyway, you can make a lot of money out of occasional market collapses if you see it coming, so what are you waiting for?

Posted by Guest on Apr. 10, 2013 @ 1:04 pm

Adjusted for inflation, the U.S economy has been shrinking since 1984.

http://www.shadowstats.com/alternate_data/gross-domestic-product-charts

Posted by TrollKiller on Apr. 11, 2013 @ 5:00 pm
Posted by anon on Apr. 11, 2013 @ 6:00 pm

Bubbles are not market cycles!

Market cycles are punctuated by the inability of producers to respond to saturated demand, "overheating."

Bubbles are different. There is no underlying value created, just shifting of resources from one column to another in anticipation of profit. Quantitative easing is what is inflating the equities markets.

The bubble pops when there is a crisis of confidence that rooted in emotion of confronting the fact that the bubble was artificial, had no connection to the fundamentals.

Posted by marcos on Apr. 11, 2013 @ 7:10 pm

You are whistling past the graveyard of Capitalism. The markets are NOT the economy. The GDP, adjusted for inflation, has been declining since 1984. The average wage, adjusted for inflation, has not increased since the 1970's. The last financial crisis wiped out savings and pensions, people are still being thrown out of their homes, there are no jobs except low-paying service work or highly specialized fields, and homelessness and food insecurity increases daily.
What is undeniable is that this country produces very little of value to the rest of the world except food and weapons. Our "economy" consists of robbing Peter to pay Paul, various Ponzi schemes, gambling on the predictions of academics and statisticians, creating money from thin air, and jumping on bandwagons like tech and biotech.

Posted by TrollKiller on Apr. 11, 2013 @ 8:25 pm

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