A lot of people, when looking at housing prices and the residential market, overlook the commercial market. The two markets are very much intertwined. Businesses need employees, and those employees will need a place to lay their head at night, unless they want to spend their life in hell (traffic) commuting from hell (Stockton comes to mind). This San Francisco Chronicle article is worth a read, and again…we highly recommend getting a subscription to the San Francisco Business Times.

Some notable quotes:

“Average asking rental rates in downtown San Francisco reached $38.31 per square foot annually, a 6.8 percent increase over the previous quarter and 25.8 percent above the previous year for the entire downtown market…

“During the second quarter, the survey found that available downtown space dropped by 242,000 square feet, reducing the vacancy rate to 8.5 percent. In the South of Market area, available space decreased by 51,000 square feet, lowering the vacancy rate to 6.6 percent.

The Bay Area’s hot commercial real estate sales market is partially responsible for the increasing office rents, the study said. Rental rates are rising faster in buildings that changed hands in the past two years.”

Making assumptions is the worst thing anyone could do in real estate, and even in life, but it is safe to assume that vacancy is declining and rates are increasing because businesses see San Francisco as a good place to do business…and good employees want to be with good companies in great cities.

–Bay Area market is booming — rents enjoy healthy increases Vacancy rates edge down somewhat during 2nd quarter [San Francisco Chronicle]