Category: San Francisco Tech News (7)

According to Bisnow, “tech and life sciences companies made up 67.1% of total office leasing activity in Silicon Valley and 64.6% in San Francisco for 2017 through midyear 2018.” With nearly daily headlines of Facebook and other tech giants snapping up huge swaths of space in San Francisco and its surrounds, it is no surprise that the Bay Area’s tech leasing activity is approximately 40% higher than the nation.

Tech, media, and e-commerce firms, both large and small, understand that in order to be competitive and attract talent, they need a physical presence in the Bay Area. San Francisco Bay Area continues to hold the title for most tech jobs in the United States. Real estate professionals project that tech will continue to expand in Silicon Valley, although solutions to issues such as affordable housing/cost of living will need to be explored to retain the skilled labor force necessary for start-ups and big tech.

2017 is proving to be a banner year for large tech real estate transactions. From Facebook to Okta, “Bay Area tech companies are determined to grow in the city–whatever the cost.” And according to the San Francisco Chronicle, that cost is sky-rocketing. The Chronicle states that tech rents have increased “140 percent since 2010…and could go up another 10%.”

San Francisco continues to be the epicenter for tech and draws talent from all over the country–and that influx of workers to San Francisco is “not expected to slow.” Employment rates have always been associated with the health of the commercial real estate market. With workers tech workers streaming into the Bay, long established tech giants expanding and new start-ups popping up every year, office and flex space will continue to remain in high demand.

Source: The Registry
By: David Goll
Date Posted: March 30, 2016

While some San Francisco real estate observers worry a sizable increase in office space available for sublease may signify a potential property “tech wreck” in the works, others view an increasing amount of available space as more of a corrective adjustment that’s creating some benefit.

According to a report from Cushman & Wakefield, the amount of office space being subleased in San Francisco, including the Financial District and SOMA, jumped from 1.3 million square feet in the third quarter of 2015 to nearly 1.7 million square feet in the fourth quarter. By the end of February, that number had climbed to 1.9 million square feet. As of March 21, 2016, JLL reports that this type of sublease availability has climbed to 2.28 million square feet in San Francisco.

SF Skyline_for web

About half of the space available for sublease is coming from technology companies, according to the JLL and Cushman & Wakefield reports. That translates to 45 of the 138 subleases in San Francisco, or close to 1.1 million square feet. And while 41 percent of companies gave contracting or consolidation as their reasons for subleasing space, 26 percent cited relocation inside the San Francisco city limits, while 22 percent are moving all or part of their businesses out of the city, according to Cushman.

“We saw the trend begin to intensify in the fourth quarter [of 2015],” said Christina Clark, senior vice president in the San Francisco office of Cresa Corporate Real Estate. “Our clients were starting to evaluate whether they were occupying too much space, what would be the best way to handle and utilize it. Others are wondering if the high costs are going to continue and whether it was worth getting into a seven-year agreement with unfavorable terms.”

As a result, Clark said leasing activity began to slow as companies “pushed the pause button.”

“We have been monitoring this trend since the second quarter of 2015,” said Andrew Nicholls, advisor in Cresa’s San Francisco office. “That’s when we noticed a distinct shift in the market.”

Colin Yasukochi, director of research and analysis in the San Francisco office of CBRE Group, the Los Angeles-based commercial real estate firm, said the subleasing trend became especially notable late last year, coming mainly from the tech sector. The reasons are varied.

“Some are expanding into new offices here in San Francisco, while some just have excess space they don’t need right now,” Yasukochi said. “There’s a variety of reasons. And what we are seeing, especially with high-quality subleased space, is that it’s not staying on the market that long. It frequently is leased within three to six months.”

Yasukochi said he doesn’t regard the current inventory of subleased space—which covers all grades of office space, but mostly A and B—to be an excessive amount.

“If there was, you would see much bigger discounts offered on space being leased directly from landlords, like 30 or 40 percent,” he said. “When the market is healthy, the discounts are not that large. Subleased space is increasing, but we’re not seeing large discounts.”

According to his research, Yasukochi said the amount of subleased space in downtown San Francisco has jumped from 1.1 million square feet in October to 1.7 million square feet in March. Unlike other observers, who predict that figure will grow substantially by year’s end, he is not quite as certain of that outcome.

“It could grow, but this is an evolving situation and that has yet to be determined,” Yasukochi said. “We will see if the supply continues to exceed demand.”

JLL’s figures tell a similar story today. Five of the largest eight sublease spaces are already in some form of discussions for the space to be subleased. Those top five available spaces are Charles Schwab’s 305,502 square feet at 215 Fremont, Dropbox’s two spaces at 185 Berry for a total of 212,000 square feet, Bingham McCutchen’s 98,000 square feet at 3 Embarcadero Center and Yahoo’s 60,000 square feet at 343 Sansome, which was just subleased to Airwave, a drone software platform company. If all these negotiations result in a new tenant, that would drop the available space to 1.6 million square feet, a 30 percent drop from where we are today. One thing to note, however, according to JLL’s report, is that 43 of the 138 available spaces came to the market in the last month, a 45 percent jump in absolute number of spaces. Some of this space includes nearly 25,000 square feet from Medium at 760 Market, nearly 34,000 square feet from Zenefits at 303 2nd Street, 18,000 square feet from Riverbed at 680 Folsom and 11,000 square feet from Box at 100 1st Street.

Asking lease rates for Class A office space downtown being offered directly from landlords averages about $76 per square foot annually, a figure which grew 14 percent in the fourth quarter of 2015, Yasukochi said. Though it would depend on the condition of the space being subleased by another tenant, asking lease rates would likely be about $65 per square foot annually this spring, he added.

“If it’s in good shape and there’s lots of interest in it,” Yasukochi said of space at those rent levels, which are reflective of the 10 to 15 percent discounts being offered.

Drew Arvay, senior vice president in the San Jose office of Cushman & Wakefield, said he’s aware of the glut of space available for sublease in San Francisco, but said it’s a different dynamic in Silicon Valley—or cities in Santa Clara, San Mateo and southern Alameda counties. It even goes by a different name.

“We call it shadow space,” Arvay said. “There are instances where companies are seeking to sublease space, but it often is on a short-term basis.”

On the other hand, Arvay said some of the Valley’s largest tech giants that occupy millions of square feet of office space might keep a few hundred thousand square feet empty for anything from storage to future productive use when they expand operations again.

“How companies are using space has really shifted in recent years,” he said. “We went from private offices and hallways to cubicles. The cubicles started out averaging 250 to 275 square feet of space per person, but then shrunk to 160 square feet. Now, cubes are disappearing and being replaced with even smaller work pods or benches, or shared space.”

But Silicon Valley companies are offsetting the downsized workplace trend by continuing to hire employees by the thousands, so they are reluctant to shrink their office footprints too substantially. Arvay said Gensler, the San Francisco-based architecture, design and planning firm, has dubbed Silicon Valley companies as the most efficient users of work space.

“That’s not to say we are immune from having surplus space that could be available for subleasing, but this is still a different situation from downtown San Francisco,” he said.

He added there is another dynamic at work in Silicon Valley and elsewhere in the corporate world over the past three years since Yahoo Inc. CEO Marissa Mayer famously ended her company’s popular work-from-home policy for employees.

“Employers have discovered innovation is born of collaboration, of employees talking to one another during the work day, talking over lunch,” Arvay said. “The money they used to save on renting space by having employees work in their pajamas from home was being lost by a decrease in developing innovative ideas.”

Both Clark and Yasukochi said they see another potential storm cloud on the horizon for San Francisco employers: the possible decrease in VC funding, mainly affecting the tech sector.

“We are hearing that while companies are still getting funded, some are getting less funding or having trouble getting another round of funding,” Clark said. “VC funding is critical, so we are watching that very closely. That trend really started accelerating in the fourth quarter, making tenants seriously consider whether they need so much space.”

Link to article: Sublease Conundrum

Source: San Francisco Business Times
By: Roland Li
Date Posted: March 3, 2016

Quantcast, a website analytics company, has leased three floors totaling about 95,000 square feet at 795 Folsom St., the former Twitter Inc. headquarters in South of Market, said two sources familiar with the property.


San Francisco-based Quantcast is replacing AT&T Inc. (NYSE: T), which vacated the space at the end of January, said a source. The swiftness of the deal is another sign that large chunks of office space are still being filled rapidly throughout the city, despite recent job cutbacks at prominent startups such as Zenefits and Surveymonkey. The asking rent in the building was in the mid-$70s, according to marketing materials.

Quantcast, founded in 2006, is also more established than many of the venture capital-fueled tech tenants that are growing rapidly. Quantcast was the 33rd-largest tech employer in the city with 385 employees as of January, up slightly from its 368 local employees in January 2015, according to Business Times research.

A Quantcast spokeswoman confirmed the lease and said the company will be relocating from its current headquarters about three blocks away at 201 Third St.

Steve Anderson and Bryan Ivie of JLL represented landlord ASB Real Estate Investments and asset manager Union Property Capital in the lease. JLL also represented the tenant. JLL declined to comment.

The six-story, 187,000-square-foot building at 795 Folsom St. is close to Yuerba Buena and Moscone Center. It was built in 1976 and renovated in 1999.

Twitter (NYSE: TWTR) moved into 795 Folsom St. in 2009, and then relocated to its current headquarters at 1355 Market St. in 2012. Current tenants at 795 Folsom St. include the real estate space provider Regus (LON: RGU) and gaming company Kabam Inc.

ASB bought 795 Folsom St. from Cornerstone Real Estate investors for $110 million in 2013.

Link to article: SF Tech Company Leases Three Floors at former Twitter HQ

Source: San Francisco Business Times
By: Riley McDermid
Date Posted: January 27, 2016

Landmark tech HQ building could fetch as much as $1,000 a foot in sale

The San Francisco landmark PacBell building could fetch as much as $1,000 square feet when it is sold, reports The Registry, a record price that points to how high office rents currently are – and the value they are bringing to commercial real estate sales.

At 286,092 square feet of office space and 9,000 square feet of retail, that could add up to $295 million for the building located at 140 Montgomery, which currently boasts tenants such as Yelp and Lumosity.

140 Montgomery

The Registry’s report posits those high rents that could drive up the sale price of the building, which Wilson Meany and Stockbridge Capital Group bought from AT&T in 2007.

“One of the reasons for the high sales price is the current condition of the rents in the property. The office building has rents that are closer to current market rents than any other office asset in the city at this time,” The Registry reports. “Should 140 New Montgomery achieve the $1,000 per square foot sale price, it would place the asset very close to replacement cost, which some sources in San Francisco have pegged to be close to $1,000 per square foot.”

“Yelp had signed an eight-year lease in 2011 to occupy nine floors in the building with an annual rental rate that began at $54 a square foot and is planned to increase to $66.41 a foot by the eighth year,” The Registry reports.

“The landlord granted an initial $5.8 million, or $60 a foot, tenant-improvement allowance, according to records filed by Yelp with the U.S. Securities and Exchange Commission. Lumosity signed a lease in 2013 to occupy 36,000 square feet, or three floors, in the building.”

Eastdil Secured, the listing agent for the property, didn’t return a request for comment from the Business Times. Wilson Meany confirmed to The Registry that the building is up for sale.

Link to Business Times Article: Tech HQ Could Fetch $1000 a foot in sale

Link to The Registry Report: 140 Montgomery

Source: San Francisco Business Times
By: Roland Li
Date Posted: January 14, 2016

Back in October, the audio giant Dolby Laboratories Inc. completed its move to 1275 Market St., heralding another tech arrival in San Francisco’s changing Mid-Market neighborhood.

With the relocation, Dolby (NYSE:DLB) vacated a 150,000-square-foot office at 999 Brannan St. in South of Market, and the building is close to being filled again. Airbnb Inc. is in talks to lease at least 100,000 square feet at 999 Brannan St., said three sources familiar with the property.

The pending deal is another affirmation that even as companies put up large blocks of sublease space on the market, suggesting a slowdown, other growing businesses are quickly snapping them up. Strong market activity, particularly from tech companies, has propelled San Francisco to become the most expensive office market in the country.

999 Brannan St. appears to be a natural expansion for Airbnb. The property is about a block from Airbnb’s current headquarters at 888 Brannan St., separated by Highway 80. The four-story property has a glass facade that wraps around its curving triangular structure, along with rooftop parking and a penthouse conference room, designed by Leddy Maytum Stacy Architects. The asking rent in the building wasn’t clear, but South of Market’s average office rent has surpassed $70 per square foot.


Dolby bought 999 Brannan St. from Shako Real Estate Management Inc. for $18.2 million in 1998, according to property records, but with renovations and a new tenant, the building would be worth exponentially more.,p>
Airbnb’s current location at 888 Brannan St. is evidence of the sharp jump in building values in the area. Last year, pension fund TIAA-CREF bought 888 Brannan St for $312 million from Beacon Capital Partners, a 69 percent profit on the $185 million that Beacon paid for the building in 2014. Airbnb leases 225,000 square feet, or more than half of the 400,000-square-foot building.

Airbnb, valued at $25.5 billion in its latest fundraising round in November, is the world’s third-most valuable private startup on paper, behind Uber Technologies Inc. and China’s Xiaomi Inc. The short-term rentals company also lobbied aggressively and spent $8.5 million to defeat Prop. F, a San Francisco ballot measure that would have added restrictions to its business. The company had around 500 San Francisco employees last year, according to Business Times research.

Jack Jackson of Tailwind Commercial, the leasing broker for 999 Brannan St., didn’t respond to requests for comment. A spokesman for Airbnb declined to comment.

Link to article: Airbnb Eyes Former Dolby Space

Source: San Francisco Chronicle
By: Kathleen Pender
Date Posted: December 3, 2015

Fierce demand for tech workers and office space in the Bay Area continues to push wages and rents into the stratosphere.

In San Francisco, the average annual wage for tech company workers rose to $176,275 in 2014, up 12.8 percent from the year before. That was the biggest increase among 36 markets nationwide, according to JLL, a commercial real estate services firm.

The wage might sound high, because it includes salary, bonuses, income from stock options, severance pay, cash value of meals, tips and certain other types of compensation.


San Mateo County had the nation’s highest average tech company wage last year, $240,663. That was actually down 23 percent from 2013, when the county’s average was probably distorted by a $3.3 billion stock option gain reaped by Facebook CEO Mark Zuckerberg. It was also skewed in 2012, when the Menlo Park company went public and Zuckerberg made a $2.1 billion profit exercising options, said JLL Vice President Amber Schiada.

“It’s crazy how just one company can move the needle, but San Mateo’s tech-job base is small” compared with neighboring counties, Schiada said. Last year, with no Zuckerberg options in the picture, San Mateo County’s average tech wage looked a little more like its neighbors’.

In Santa Clara County, the average tech company wage was $211,874, up 8.4 percent from 2013. In Alameda and Contra Costa counties, it rose to $121,747, up 6 percent.

These numbers, derived from federal and state labor market data, reflect average wages in eight industries selected by JLL: computer/electronic product manufacturing, electrical equipment manufacturing, e-retailers, online auctions, computer systems design, data processing and hosting, software publishers, and other information services.

By comparison, the average wage in all industries nationwide last year was $51,364 in 2014, up 3.1 percent, according to the U.S. Bureau of Labor Statistics.

The growing disparity between tech workers and everyone else is putting pressure on cities to raise their minimum wage and even helped win a pay raise for tech bus drivers, said Steven Levy, director of the Center for Continuing Study of the California Economy. But these gains at the bottom of the income scale “are swamped by increases in housing prices, mostly rent.”

Office rents soar: The same bidding wars driving up tech wages and housing are also driving up the cost of office space. The average asking rent in the third quarter was $66.80 per square foot per year in San Francisco, up 12.6 percent over the previous 12 months. It was $53.49 in San Mateo County, up 16.4 percent, and $41.68 in Santa Clara County, up 3 percent. That compares with a U.S. average of $30.59 per square foot.

Tech companies hoping to avoid the Bay Area’s high cost of labor, housing and office space are considering locating in secondary and tertiary tech hubs. In a report, JLL analyzed 37 markets based on their costs (wages, office space and housing) and startup opportunity (measured by employment and wage growth, Millennial workforce and education levels, patent activity, access to venture capital and proximity to a tech cluster or giant).

Based on these factors, San Francisco offered the highest startup opportunity but also the highest cost. Markets that offered high opportunity and more reasonable costs included Austin, Seattle-Bellevue, Denver, Chicago and Washington. Places with high startup opportunity and low costs include Las Vegas, Orlando and Nashville.

“If you are a young tech company, especially one that is sensitive to cost,” those markets look more attractive, Schiada said.

The report pointed out that only 59 percent of unicorns — private companies valued at $1 billion or more — are now based in San Francisco and Silicon Valley, down from 76 percent in 2014.

That said, Silicon Valley “is still the center of the tech universe” and will be for the foreseeable future, Schiada said.

Santa Clara County was by far the largest center of leasing activity over the past year, measured by leases of 20,000 square feet or greater signed by tech companies. Such leases accounted for 5.4 million square feet, more than twice as much as in the No. 2 market for tech leasing, San Francisco.

Which companies leased the most new space? In Santa Clara County it was Google, which signed up for 2.1 million square feet in Mountain View. In San Francisco it was Uber, which took on 310,000 additional square feet. In San Mateo County it was Survey Monkey, which leased 210,000 square feet at Bay Meadows. In the East Bay, it was Workday, which rented 151,000 square feet in Pleasanton, Schiada said.

These numbers exclude companies that purchased major new office space, including Uber in Oakland and in San Francisco.

Rents are soaring …

Average asking rents for office space in the nation’s 10 most expensive tech submarkets:

Downtown Palo Alto: $98.68

Downtown Mountain View: $87.53

Mission Bay/China Basin, S.F.: $81.50

Hudson Square, N.Y.: $81.50

Soho, N.Y.: $79.80

Gramercy Park, N.Y.: $76.58

Menlo Park**: $73.44

South Financial District, S.F.: $68.61

North Financial District, S.F.: $68.53

East Cambridge, Boston: $67.21

*Per square foot, per year for full-service leases in the third quarter of 2015

**Excludes Sand Hill Road

Source: JLL

… And so are wages

Top 10 markets for tech company wages


Annual wage, 2014*; Change from 2013

San Mateo County: $240,663; -23.5%

Santa Clara County: $211,874; 8.4%

San Francisco: $176,275; 12.8%

Seattle-Bellevue; $154,390; 7.4%

New York City-Brooklyn: $135,339; 7.8%

Boston: $131,278; 3.9%

Alameda & Contra Costa counties: $121,747; 6.0%

Northern Virginia: $119,901; 2.6%

Portland: $112,185; 7.8%

Suburban Maryland: $109,027: 5.4%

*Includes salary, bonuses, income from stock options, severance pay, cash value of meals, tips and certain other types of compensation.

Sources: JLL, Bureau of Labor Statistics, California Employment Development Department

Link to Article: Wages, Rents Up