Cities on the Bay Area's Peninsula are moving ahead with restrictions on office development even though the market that spurred the enormous demand for offices appears to have turned. Explosive growth of technology and Internet-related companies on the San Francisco Peninsula created the need for office space. But during the last year, the market became so skewed that San Jose, San Francisco and several suburbs in between imposed regulations to protect the integrity of downtown districts and industrial areas from the dot-com office invasion. However, some market analysts say that the demand for dot-com office space in the Bay Area has already peaked. Although they still have concerns, some planners report the same trend. "My sense is the market has already cooled a little, and that has taken away some of the land use issues, but not all of the land use issues," said Mary Gallagher, chief of planning for the City of San Mateo. Those issues came to head in San Mateo during the summer of 2000, when a tech start-up called @themoment leased an empty 18,000-square-foot downtown storefront that had been a retail clothing shop. Although the storefront had set empty for months, merchants did not like the office conversion and feared a full-fledged dot-com move to downtown would price them out of the market. Neither yuppified nor forgotten, downtown San Mateo has remained a functioning district meeting a wide variety of residents' needs. The City Council responded by imposing a moratorium on office conversions in downtown and a neighboring retail district. The city also commissioned a study examining the office-versus-retail question, Gallagher said. That study is due back this month. The moratorium is scheduled to expire in mid-April but might have to be extended to give city officials time to write new land use controls, depending on what the consultant's study concludes, she said. The city had been getting many applications for conversion of retail and industrial space to offices, as well as applications to develop new office buildings, Gallagher said. The city allows offices in retail zoning districts only under exceptional circumstances. But the market was so strong that leasing agents and desperate businesses were pushing the ordinance's language beyond its intent, she said. "In the last month or two, some of the problems have gone away on their own," Gallagher added. "I've been particularly worried about conversions in our industrial areas because we have so little space for industrial uses." The impact on industrial uses is also concern a few miles south in San Carlos, Menlo Park and Redwood City. In 2000, San Carlos tightened its zoning ordinance for downtown to prohibit ground-floor office uses. Now, the city is updating its East Side Plan, which encompasses an area with many light industrial businesses. Traffic and parking demands from offices and the potential loss of light industry -- which has sustained San Carlos for decades -- are the primary concerns, said Planning Director Liz Cullinan. The city lacks a good definition of "research and development," Cullinan added. The R&D businesses that have moved into the city's industrial districts lately rely on computers in an office environment. "The zoning codes have not kept up with the times," she said. In Redwood City, both industrial areas and downtown are a concern. For more than 20 years, Redwood City has worked on improving its downtown retail climate with limited success. However, when dot-com offices began showing up in vacant storefronts, city officials adopted a moratorium on ground-floor conversions to office uses and on development of office buildings on certain parcels. The moratorium, adopted last September, applied to half of the city's commercial districts, including downtown. It quickly gave way to a six-month urgency ordinance scheduled to expire in April This month, the Redwood City City Council is expected to adopt general plan and zoning amendments for all commercial and industrial property. The amendments would prohibit most first-floor offices in the downtown shopping district, restrict the size and type of offices in neighborhood-serving retail centers, and limit office uses in industrial zones. The proposal also includes new parking standards for office development, and regulations to control new office buildings' mass and traffic impacts. "We are approaching the office issue not just from the retail standpoint, but from the loss of industrial sites and the loss of sites where we had planned housing," said Jill Ekas of the Redwood City planning department. The concerns about too many offices displacing other uses are not limited to the suburbs. At the urging of redevelopment officials, San Jose has imposed new restrictions on new ground-floor offices throughout the downtown so that retailers and restaurants do not get priced out of the market. In San Francisco, a slow-growth majority elected to the Board of Supervisors last December has signaled its intent to block office development in numerous working-class neighborhoods that are fighting gentrification. Whether all the office restrictions will even be needed as this year progresses is a question some people are asking. A fourth quarter analysis by Cushman & Wakefield, one of the area's largest leasing agents, pointed to a continued strong market. The company reported the average asking rental rate for offices on the Peninsula was $6.53 per square foot, per month – higher than both Silicon Valley and San Francisco proper. A total of 2.5 million square feet of office space was built on the Peninsula last year, Cushman & Wakefield reported. However, Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at University of California, Berkeley, said the dot-com tide is already receding. In a report released in January, Rosen concluded that a three-year gold rush peaked in late 2000 and that the office construction boom is ending. In San Francisco, where conversions and office development became a major election issue, leasing agents report the amount of available office space has tripled in only a few months, mostly because of the demise of dot-com businesses. Contacts: Mary Gallagher, San Mateo planning department, (650) Liz Cullinan, San Carlos community development department, (650) Jill Ekas, Redwood City planning department, (650) 780-7298. Kenneth Rosen, Fisher Center for Real Estate and Urban Economics, (510) 643-6105. Cushman & Wakefield website: www.cushmanwakefield.com