Dot-com capital hits the economic skids

When Andrew Brenner and Michael Feldman lost their jobs in the great dot-com meltdown last year, they decided to do something more constructive than simply mope about feeling sorry for themselves. So they started something called Recession Camp, an informal club of unemployed dot-commers in the San Francisco area who would meet to go hill-walking, drink cocktails, or attend yoga sessions.

The idea was popular and earned the pair considerable media attention, not least because it was a dot-com inspired venture that did not even set out to make money. A year on, however, Recession Camp has itself fallen victim to economic slowdown.

As Mr Feldman explains: "I've got to work, man!" Making ends meet is a full-time job, though far less lucrative than before. Where once he and Mr Brenner had time to organise social events and run the Recession Camp website, life no longer affords them such a luxury as they search for short-term consulting contracts.

"It's really bad," Mr Feldman added. "I know MBAs from Ivy League schools who've been out of work for more than a year."

By now, San Francisco is suffering from far more than a post dot-com hangover. It has hit the economic skids like no other North American city. The dot-coms went first, followed by the hi-tech and telecommunications companies in Silicon Valley. Last September's attacks, and the subsequent slump in air traffic, hit the city's tourism and convention business.

Where other cities have some other economic mainstay – in manufacturing, say – San Francisco has fallen victim to its own extraordinary success in attracting capital investment during the 1990s. The investment money has simply dried up and, with new corporate accounting scandals rocking Wall Street every week, shows no sign of returning any time soon.

"We've been hit about as hard as any place in the country," said Kent Sims, a prominent economic consultant and a former director of economic development and planning for the city. "San Francisco's three main economic sectors are finance, government and hospitality, and two of those have been hit hard."

Unemployment is running at about 7 per cent, well above the national average. Where office space was once eaten up as fast as it could be created, the city now has 13 million sq ft to spare – more than 20 per cent of the total – and office rents have halved. Hotel occupancy is down by a third, even now in the height of the tourist season, and the city has seen a net loss of more than 200 restaurants.

Tough times have transformed the city just as surely as the boom did. Most of the young dot-commers – the twentysomethings who swept into San Francisco "with visions of sugar-plums dancing in their heads", as one local business consultant put it – are long gone, back to the heartland cities whence they came. Some have clung on by entering the conventional economy, or going to work for online porn sites.

Some of the changes have been beneficial, notably the steep decline in rents, which has in turn stopped the process whereby San Francisco's older working-class neighbourhoods were being colonised and stripped of their traditional character. Because San Francisco is such an inherently desirable place to live, there is no shortage of people; it is rather the nature, and the affluence level, of the people that has changed.

There are few better emblems of the way the tech boom was stopped in its tracks than the corner of 17th St and Rhode Island Avenue, where an entire city block has been reduced to a hole in the ground for the past two years. The software company Macromedia once had plans to build a giant new headquarters here – 285,000 sq ft of offices all told. But then came the bust, not to mention a local lawsuit, and the plans were abandoned.

The hole has become such a joke in the surrounding Potrero Hill neighbourhood that the local paper recently held a "name that hole" contest. (The winner: Dot-Bomb Park.) Now there are plans to convert the space into something the city needed all along: high-density, modestly priced housing, complete with a few gourmet food shops.