Bay Area dot-com industry verges on major collapse

While it once welcomed Internet start-ups with open arms, San Francisco will likely be the epicenter of the dot-com meltdown, according to a new study set to come out tomorrow.

The Rosen Consulting Group examined the San Francisco office real estate market and concluded that current trends suggest around 80 percent of dot-coms in the city will die. Rosen based its predictions on San Francisco office market numbers provided by real estate behemoth Cushman & Wakefield.

While the study might seem controversial enough to workers in the city, it also stirred some controversy between Rosen Consulting and Cushman & Wakefield.

"We do not agree with the conclusions of the report," said a spokeswoman at Cushman & Wakefield. The company will issue its own report, she said, but declined to offer details.

Cushman & Wakefield said it merely provided the raw data for Rosen Consulting's study and did not make any economic assessments of its own.

The Rosen Consulting report paints a somewhat gloomy picture for the city.

"As a whole, the San Francisco office market weakened during the first quarter of 2001, in tandem with rising Internet firm layoffs, a reduction in venture capital funding and a deceleration in broader technology sector growth," the Rosen Consulting report said.

Real estate prices in prime San Francisco business and technology locations showed astronomical growth throughout 2000. Even after significant first quarter 2001 declines in real estate costs, some of these hot spots still stand 40 percent to 60 percent higher than 1999 levels.

San Francisco and its neighboring cities saw over US$53 billion [b] in venture capital roll in over the last four years, according to the Rosen Consulting report. This total equalled close to 40 percent of all the venture capital invested in the U.S. as a whole. During the same four-year time frame, this injection of capital created an extra 170,000 jobs in San Francisco.

In turn, office space and home rents skyrocketed to the point where companies and workers eventually needed to look elsewhere for affordable space, a trend particularly noticeable over the last year. In the most recent quarter, real estate prices finally have begun to cool off, starting a trend which Rosen Consulting thinks could benefit the city.

"The rise and fall in San Francisco rents neatly corresponds with the growth and decline in Internet employment," the report said. "The combination of continued Internet dispersion, a reduction in the growth of high-tech and financial services firms and a slowing national economy will lower the rate of San Francisco office employment growth and further reduce demand for office space. A rational drop in rents will improve the long-run health of the markets by allowing normal tenant mobility at affordable occupancy costs."

Fallout in the Internet sector will apparently free up cost-effective space for other businesses. Film maker George Lucas runs his Lucas Films' Presidio project close to San Francisco and could stand as one source of growth in the months ahead, according to Rosen Consulting. In addition, the company's report states that a growing bio-tech market might also spur success.

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