Bleak Future Predicted For San Francisco Internet Firms - InformationWeek

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Bleak Future Predicted For San Francisco Internet Firms

Eighty percent of the remaining San Francisco-based Internet companies will collapse over the next year, predicts a new study released Wednesday by the Rosen Consulting Group, an economic and real-estate consulting firm.

The prediction was made after analyzing Bureau of Labor statistics, venture-capital funding numbers, and real-estate data provided by real-estate broker Cushman & Wakefield. The study also predicts San Francisco has a 70% chance of experiencing a recession in the near future.

If the dire prediction for dot-coms becomes reality, as much as 4 million square feet of commercial real estate could become available. Commercial real-estate prices had increased dramatically and vacancies were rare in San Francisco during the height of the high-tech boom. But according to the survey, vacancies have increased and average rents have fallen for the first time in two years because of the high failure rate of Internet startups. In one district, office space prices fell from $80.16 per square foot in the fourth quarter of last year to $74.16 per square foot in this year's first quarter, a drop of 7.5%.

"The rise and fall in San Francisco rents neatly correspond with the growth and decline in Internet (and related high-tech and high-tech service) employment," the study says. "In just five months, between the fourth quarter of 2000 and February 2001, approximately 3 million square feet of sublease space have returned to market. Internet and high-risk technology firms accounted for 77% of such space."

The loss of so many companies willing to pay extraordinary prices for space might mean a return to a rational real-estate market in the Bay area.

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