One Market Plaza. The name alone elicits a knowing "aha" among business-savvy San Franciscans. The office complex overlooks the scenic Bay Bridge and sits at the head of Market Street, the main thoroughfare that divides the city. On one side are downtown and the financial district. The other side is known as South of Market, or SoMa. It's a location that gives One Market's two high-rises - the 27-story Steuart tower and the 42-story Spear tower - trophy status in one of the hottest office markets in the world.
During the long boom of the 1990s - a time when the San Francisco area acquired more new major corporate headquarters than any other metropolitan region - One Market Plaza thrived. That was, until 1999. Then One Market Plaza virtually exploded.
In just a few months, as the Internet bubble neared its peak, rents at the complex went from pricey to ridiculous. In January 2000, Wilson Sonsini Goodrich & Rosati, Silicon Valley's marquee law firm, signed a lease on a space that was priced at $65 per square foot, according to CoStar Group, a real estate research firm. By the time OmniSky and WitSoundview signed on a few months later, the asking price was $90 per square foot. By October, Commerce One, fresh from closing one of the largest leases of the year in the East Bay, was taking space on the 13th floor for a staggering $115 per square foot - a San Francisco record.
It's a record that's likely to stand for quite a while. Today at One Market, you can sublease floors 19, 20 and 21 from Internet Capital Group for $65 per square foot (ICG is paying $90). A few floors higher, longtime tenant Accenture is subleasing part of a floor for $45 a square foot. Three of four floors OmniSky rented are on the market. The price: negotiable. To lure leasing agents, the company is offering $100 gift certificates to Neiman-Marcus for merely showing up to see the space.
All in all, One Market Plaza remains a healthy property with low vacancy rates. But its brief ride on the Internet roller coaster is one that was repeated all across the San Francisco Bay Area - and in many other urban centers around the country. And now, as lease after lease unravels, landlords and tenants both are facing the fallout from the gross miscalculations and misplaced ambitions that infected every aspect of the bubble economy.
For landlords, vacancies are mounting to levels not seen since the recession of the early 1990s. As office space sits idle, some buildings that were for sale have been pulled off the market. And new construction is expected to slow: Of the 7 million square feet of office space approved for construction in recent years, only 3.8 million are being built, says Colin Yasukochi, director of research for Grubb & Ellis. Most of the remaining projects "won't get built because there is a fairly large available supply right now," Yasukochi says. "Rents have declined to the point where construction may not be financially feasible."
