Land for downtown high-rise offices, once at such a premium that the city created a contest to winnow the proposals to a chosen few, now sits empty, ignored by developers.
The latest blow to the market came with the downfall of two high-rise projects that won portions of San Francisco’s 1989 “beauty contest,” leaving neither plans nor bids for the sites. Of the 14 projects that have won city approval under the beauty-contest process, 11 have never been built.
“The era of downtown office towers is over. It will not be seen again for at least a decade,” said architect Jeffrey Heller, who designed one of the two projects that recently fell through.
Already, 10 to 13 percent of existing office space in San Francisco is vacant. Demand has dropped as corporations cut their work forces during the recession and moved staff out of town to lower-cost suburban offices. A city report showed downtown San Francisco lost nearly 12 percent of its jobs from 1985 to 1993.
Recently, for example, Bechtel Corp. said it would cut several hundred employees from its payroll and lease the two floors that those workers occupied in an office building the company owns.
The dramatic drop in demand has rendered meaningless San Francisco’s once hotly fought contest of proposed downtown high-rises.
Devised in 1986, the beauty contest balanced the developers’ desire for prime downtown real estate with the public’s anger over the mounting number of high-rises. Critics said the building boom destroyed historic structures, ruined views, triggered high rents and aggravated traffic and environmental problems.
The Planning Commission-operated contest limited downtown high-rise office development to 950,000 square feet a year. In the contest’s heyday, developers spent millions of dollars to beat out competitors for a slice of the annual quota.
Voters clamped down still further in 1986 and passed Proposition M, which reduced the annual quota to 400,000 square feet.
Even with the building restrictions, the Planning Department estimates that 1.7 million square feet of high-rise office space has been approved but not built-equal to five hefty towers.
An Examiner survey of 14 developers who won the contest during the years of office building competition showed that only three had built the buildings the Planning Commission approved.
Heller predicted the demand for office space would not rebound in the foreseeable future.
Two of the projects on the drawing board since 1989 have fallen through in the last month. A tower project designed for developer Alexandre Lui is in foreclosure, and the lot on which the $30 million project was to stand is on the market for $900,000.
The other abandoned office tower was a $25 million project that Gensler & Associates designed for Chevron Land Co.
Developers and officials have conflicting opinions on the future of San Francisco’s downtown high-rise market.
Some say plans by the state and federal governments to build new San Francisco high-rise offices is likely to worsen the situation and inhibit new construction. Both intend to consolidate agencies now spread across downtown offices into new buildings. When those buildings are opened, it would empty several hundred thousand square feet of offices throughout downtown.
On the other hand, says Matthew Witte, a would-be developer, “Rents are nearing the point of justifying new construction.”
Rents ran from $35 to $50 per square foot per year at the height of the office boom in the 1980s. Many rents now hover closer to $18 per square foot, although the rate can climb to $35 or higher if the structure is considered a prestigious one.
Despite the drop in rents and lack of new construction, there are hints that one or more new office towers might be in the works.
The Gap continues its planning for a headquarters tower on the waterfront.
