Looking for Breathing Room on Rents.

• Author: Marshall, Jeffrey

While moviegoers were chortling over this summer's "Scary Movie," many financial executives were sweating over scary moves -- relocating to new office space or expanding in what has become one of the tightest commercial real estate markets ever.

Things have been especially frightening in the San Francisco area, where spiraling rents have created something of a Nightmare on Market Street. Lease rates in San Francisco have doubled in the past year, spurred by voracious demand from Internet and other leading-edge technology firms. Nearby San Mateo County has the nation's highest office rents. New space is gobbled up as soon as it hits the market, often at prices once considered unthinkable -- north of $80 a square foot.

The situation is only a little less dire in many of the nation's high-tech corridors: New York's Silicon Alley, northern Virginia, Boston, Seattle, Austin. Demand is stiff, and space is at a premium. Landlords are licking their chops. Rents have continued to rise, and even April's tech-stock meltdown didn't have any immediate impact on demand.

Markets without that frenetic high-tech activity haven't experienced those kinds of anxieties, but even there, executives are confronting more fundamental issues about real estate occupancy costs. Subjects like relocating, outsourcing, facilities management and reengineering space have become hot topics for corporations looking to bring savings to the bottom line.

But the trend to "re-urbanization" may be the most troubling to would-be savers. The fact is that urban markets have become the hub of the New Economy, and that's where many employees want to work - and live. "What's driving real estate is primarily labor-based," says J. Michael Bell, a vice president with Carter & Associates, a real estate services firm in Atlanta. "It's so competitive for employees that companies are trying to create an environment to attract them."

"If you are a high-intellectual-capital company, your number one challenge is growing quickly with the right labor force," says Janice Stanton, a managing director with real estate services firm Cushman & Wakefield. "It's not so much about real estate costs, but the labor force." High-tech firms have been growing at seven times the national average, Stanton adds, spurring revitalization of down-towns. Rent growth in central business districts was triple that of suburbs in the year ending in the first quarter, Cushman found.

"There's been a retrofitting of office...