A view looking south over the South of Market neighborhood in San Francisco, Calif. Thursday, September 1, 2016. (Jessica Christian/S.F. Examiner)

SF seeks to upzone Central SoMa neighborhood

San Francisco’s South of Market neighborhood is preparing for a renaissance.

With just a sliver of public open space, the neighborhood is home to the Moscone Convention Center, museums, office space, residential hotels and the future site of The City’s first new subway line in decades, which is set to open by 2019.

But how much development will flood Central SoMa — particularly the 230-acre central area adjacent to downtown that runs from Second to Sixth streets, and Market to Townsend streets — remains unknown, as real estate experts caution the residential and commercial market may finally be cooling.

The latest version of the Central SoMa Plan, The City’s only area plan currently under way, was unveiled at a Planning Commission meeting last month. In the works since 2011, the plan’s draft environmental impact report is expected to be released in November.

“The neighborhood has a lot of things going for it already,” said Steve Wertheim, project manager for the Central SoMa Plan. “It has a diversity of residents and jobs, it’s a transit-served central location, it has a diversity of buildings and architecture and has excellent culture and nightlife.”

The area, however, is plagued by challenges as well, Wertheim noted.

“The rent is too high,” he said. “The conditions for people walking and biking is abominable. There’s a distinct lack of open space, and relative to The City’s needs it has very inefficiently used land.”

To that end, the Central SoMa Plan proposes to upzone parts of the neighborhood to accommodate future development, including hotels, offices and homes — although the process must be a delicate balance.

“There’s enough demand pressure in San Francisco and enough desire for public benefits that we could zone this neighborhood such that the heights are similar to Rincon Hill or downtown,” Wertheim said. “But then it wouldn’t be SoMa anymore.”

Specifically, the plan recommends requirements and controls that would result in up to $2 billion in public benefits. Without the plan, some $300 million would be received, Wertheim said.

Andrew Junius, a San Francisco-based land use attorney, cautioned that just like the voter-approved Proposition C that sets a 25 percent affordable housing requirement in new city developments of certain sizes, requirements and controls for Central SoMa must find the sweet spot of encouraging development and meeting community needs.

“Getting the amount of fees correct is really critical here,” Junius said.

Following an increase in demand for commercial space in Central SoMa at least since 2013, there has been a slight standstill in the market over the past six months, according to Mike Monroe, an executive vice president at Colliers International.

“There’s still a lot of companies wanting to be here, wanting to grow here, but in the last six months there has been this pause,” Monroe said at a recent panel on the plan at urban think tank SPUR.

That’s not to say the commercial market is taking a significant turn, he added. In fact, the growth of subleases in recent months — Twitter in the mid-Market area reportedly subleased a third of its office space earlier this year — gives tenants “Band-Aid growth” that enables them to see where the market goes.

“[The waters] are choppy, but in my opinion there’s still this commitment to San Francisco that isn’t going away,” Monroe said.

The residential market is seeing a similar trend of a six-month slowdown, according to Darren Kuiper, a vice president at Colliers International, who also spoke at the SPUR panel. But he says macroeconomic issues may be more to blame for that plateau.

“Over the past three years, we’ve seen construction costs increase about 40 percent, which is pretty dramatic,” Kuiper said. “We’re going to have to see how the affordability and construction costs moving forward support development so we can sustain the growth in San Francisco.”

However, real estate experts say there’s at least one area where demand remains steady: the hotel industry.

The Central SoMa Plan specifically suggests exploring the removal of a 75-room cap on most hotels permitted in the plan area to accommodate The City’s need of multiple new hotels, particularly “conference sized” hotels of at least 500 rooms.

There are 251 hotels open in San Francisco today, and most of the newer hotels proposed are between Market Street and AT&T Park, said Kevin Carroll, executive director of the Hotel Council of San Francisco. The last major hotel to open in The City was the InterContinental at Howard and Fifth streets, which opened in 2008.

“When a hotel comes into a market or new area, it really does help both in and outside the hotel,” Carroll said. “Taxis, restaurants, jobs — there’s a lot a new hotel would bring into an area that could be very positive for a neighborhood.”

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