Don’t Fret: 5 reasons San Francisco companies are dumping office space
Source: San Francisco Business Times
Reporter: Cory Weinberg
Date Posted: June 8, 2015
The sizzling San Francisco office market may have gotten some cold water sprinkled on it, now that the amount of space for sublease has hit a five-year high. Some office market observers have said this could be a signal that the office market may be cooling off, possibly a leading indicator that technology companies are getting too ambitious with their space needs.
But real estate brokerages have sprung to the market’s defense, arguing that the sublease trend is a positive sign. Subleases loosen the market, which makes it healthier, and give startups in need of quick space the opportunity to stay in San Francisco, they say.
“Many landlords are unwilling to sign for less than seven years, so tech startups in particular are finding the sublease market to be a viable option,” a market report by the brokerage JLL said. JLL also pointed out sublease space is being gobbled up at a quick pace – staying on the market for just 94 days on average.
Cushman & Wakefield said there’s “no need to fret.” San Francisco has “nowhere near the amount of vacant sublease space recorded during the dot-com bust just after the turn of the century.”
And now CBRE has crunched numbers that detail why tech firms and non-tech firms are ditching their office space. Tech firms have put 450,000 square feet of space on the market, while non-tech firms have put 745,000 square feet.
The graphic at the bottom (click here for infograph: Graph) breaks down why companies have put up space. We’ll explain what they are:
The biggest reason that tech firms have been subleasing is because they’re banking space. That accounts for about 135,000 square feet on the market. Square is one of the tech firms that fits into this trend. “Space banking means they’ve taken another space and would have already occupied it, but they took more than they needed,” said Colin Yasukochi, director of research for CBRE.
More than 100,000 square feet is on the market because a tech company has outgrown its space. The biggest example here? Salesforce, which is leasing out space in 1 California and 123 Mission as it grows into its new urban campus next to the future Transbay Transit Center.
About 100,000 square feet is on the market because tech firms have consolidated due to a merger or acquisition. That’s likely why the market has seen some real estate tech firms try to shed some space after Zillow acquired Trulia earlier this year.
About 17 percent of tech company sublease space and 22 percent of non-tech firm space is due to downsizing.
Exiting San Francisco
The bulk of non-tech firms that are trying to sublease space are moving jobs out of San Francisco. That’s why Charles Schwab is looking to shed 350,000 square feet of its space, though it’s maintained it will keep its headquarters present in San Francisco.
Link to article: SF Office Space