San Francisco's Rising Costs Prompt Business Exodus

THE charm of this city by the bay may not be fading, but to many inner-city dwellers and companies San Francisco is becoming an increasingly difficult place to stay. Skyrocketing housing costs, nightmarish traffic congestion, and rising crime have forced a decade-long trend of businesses and workers trickling to suburbs.

Companies such as Chevron, AT&T, and Pacific Bell have moved their offices out of the city. Even San Francisco's baseball team, the Giants, are considering a move out of Candlestick Park and into a city elsewhere in the Bay Area that offers a larger stadium.

``San Francisco is changing,'' says David Heindel of the city's Office of Business and Economic Development.

The culprit is the charm of San Francisco and the strength of the Bay Area's economy, which for decades has been attracting people from across the country. Nearly 6 million people now live in the nine counties surrounding the San Francisco and San Pablo Bays.

Yet San Francisco boasted an unemployment rate of just 3.2 percent at the close of 1988 and is one of the leading US cities in recorded new business start-ups.

As a result, people have continued to stream into the area, spurring construction and forcing land prices to soar. The average Bay Area house costs $240,000, compared with the national average of $130,000. An average house in San Francisco costs nearly $300,000.

Businesses have also been placed in a land squeeze. Expansion space in the city is becoming difficult to find, making moves to other parts of the Bay Area attractive.

A survey last year found 8 percent of city businesses expect to move out within two years. More than one-third expect to move - in the city or out of it - by the end of 1990.

``The trend now is for businesses to move where their employees are,'' says Sean Quinn, a city planner overseeing economic development for Fairfield, a rapidly growing city of 75,000 located 45 miles east of San Francisco. Mr. Quinn estimates about 80 percent of the business queries he fields are from inner Bay Area companies looking for a less-expensive site to move to.

``The main reason we wanted to relocate was because of the cost-of-living factor and having the opportunity to expand,'' says Lorna Doube, a spokeswoman for First Interstate Bank. Her company decided in 1987 to move its San Francisco offices to Sacramento, a move that will affect 1,500 employees.

Competition for land in the Bay Area is expected to grow. A report released last week by the Palo Alto-based Center for Continuing Study of the California Economy predicts the Bay Area will swell to a population of 7.1 million by the year 2000. The report predicts another 6 million people will move into California by the turn of the century, pushing the state's population to 35 million.

The effect of the business-relocation trend has been substantial. Manufacturing jobs are now centered on the Bay Area's northern and southern tips.

``I don't think San Francisco will ever be a corporate city again,'' says Angelo Siracuso of the Bay Area Council, an organization that tracks housing and business trends in the Bay Area. ``I see San Francisco losing its position in world economic status.''

That exodus of companies has stopped for now, but many business experts are bracing for a new wave of relocations of midsize companies within the next four years, as the city's vacant office space fills up and it becomes harder for them to expand.

And while San Francisco has plenty of merchants opening new businesses, most are smaller retail or service companies, replacing the relocating corporations.

Kent Smith, president of the San Francisco Economic Development Corporation, called the changes in the city ``transition pains.'' San Francisco is now being forced to carve a more specialized economic niche within the rest of the Bay Area, he says.

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