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Posted by Brett Gladstone, Esq. on Tuesday, July 22, 2014

Expert Opines on Industrial Incubator Spaces

Small Enterprise Workspace (“SEW”), a use created in 2009 but little used, has been re-written to now allow small incubator-type industrial uses to occupy more of a variety of spaces. These uses consist of small work units independently accessed from a shared common area in a new building. This new law, which went into effect at the end of June, allows SEW spaces to be three times larger than previously allowed, and will allow them to contain more space for non-industrial uses; that way, it is hoped they will be more likely to make economic sense to build.

SEW space is allowed only in new buildings or those with a first certificate of occupancy issued after January 19, 2009; and they are only allowed in the industrial zoning districts PDR-1-G and PDR-1-D. Unlike most industrial zoning where non-industrial uses are limited to 25% or 33% of floor area, a SEW space can include 50 percent non-industrial use, such as office space, as long as the uses are integrated. The new building requirement is supposed to avoid competition between traditional industrial users and SEW users for the alleged limited number of industrial buildings remaining in the City. A conditional use hearing is required for approval of this space.

The Mayor announced that he introduced this ordinance to encourage growth of manufacturing and to support local jobs. Few if any SEW spaces were built after this use was created by Planning Code amendment in 2009. Data collected by SFMade (a trade association for small manufacturers sometimes known as “maker” businesses) has shown that the demand is strongest for spaces of approximately 1,500 square feet. Previous to the new law’s enactment, 50% of the SEW units in a building had to be 500 square feet or less. Under the new law, all SEW units can be up to 1,500 square feet, except on the ground floor, which may contain a principal industrial use larger than 1,500 square feet.

The typical “maker” business that is likely to need this kind of space creates unique physical products by hand, builds prototypes using 3D printers and small machines, and uses innovative technology to drive changes in manufacturing. The new legislation was drafted by a work group including SFMade. Local products are increasingly in demand, yet these small businesses have found it difficult to find small, affordable spaces for lease in industrial districts. By their nature, buildings containing SEW uses are designed to serve as collaborative incubator space for new "maker" businesses to provide tools and other resources for small businesses outgrowing the home and/or garage.

This legislation will also help small manufacturers to share or "pool" retail space, reducing operational costs.

Those who have promoted SEW space have likened it to the space called “ActivSpace” at the corner of 18th Street and Treat Avenue. Started prior to the adoption of SEW, it was a model for the SEW concept. ActivSpace charges a flat fee for month to month rentals of spaces ranging from 250 to 500 square feet. Although the rents are quite low, there is a high return per square foot for investors (much like consumer storage units), according to some sources. Many occupants started their businesses at home and require new space either through growth or because they now need to have employees or customers on site, which is not allowed in a residential area. These businesses prefer the very short term leases provided in SEW space due to the risk inherent in these businesses over the long term.

This new law on SEW space will only apply to projects that have submitted applications for environmental review by June 1, 2017. Afterwards, the City will evaluate its impact to determine whether to continue the law.

This new law also eliminates “Integrated PDR” from the Planning Code, a use that allowed as much as two thirds of a particular space to be office space as long as one third of the space contained a PDR use operated by the same party. The Planning Department was criticized a good deal for never approving any such use, despite requests by building owners, as it did not feel there were any businesses of the type that qualified.

Originally posted (Link to: http://www.hansonbridgett.com/Publications/articles/2014-05-landuse-if-u-build-it.aspx)

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