Seattle or San Francisco? Why West Coast Tech Companies Are Choosing Both
Technology companies from California continue to set up shop in Seattle totake advantage of the comparatively lower cost of living and the depth ofengineering talent in the area. Companies like Google, Intel, and Adobe havebeen here for some time. Newcomers such as Facebook, Apple, and Salesforce arequickly expanding their Seattle-area footprints.Technology tenants are driving the Seattle/Puget Sound office market, with ahelping hand from this Silicon Valley migration. There are over 80 out-of-towntechnology companies with engineering offices in Seattle, according toGeekWire. A majority of these companies call the Bay Area home.Pinterest, valued at $11 billion, is just the latest example of the northwardtrek of tech companies. With more than 100 million active monthly users and800 employees worldwide, the social media site will ramp up Seattle operationsas other tech transplants have. It opened an office in downtown Seattle at theWestlake Tower WeWork space this August. Plans are to outgrow the coworkingspace, expand headcount to 30, and open a permanent office.Companies in the competitive world of high-tech are looking to poach veterantalent from stalwarts such as Microsoft and Amazon (who combined occupy 20million square feet in the Seattle region). San Francisco-based companies arebeing priced out of an extremely pricey office market and are looking toSeattle as a more cost-effective option. Rents on the San Francisco peninsulaare so expensive, it recently passed Manhattan for the most expensive officemarket in the country.The West Coast tech migration is not a one-way street though. Amazon’s videogame streaming site, Twitch, signed a lease for 185,000 square feet in earlyAugust at an under construction tower in San Francisco. However, Twitch’sstarting rent of $62 per square foot per year plus operating expenses isalmost twice that of what some tenants are paying for new construction in thedowntowns of Seattle and Bellevue.Here are 20 significant California-based companies with engineering offices inthe Seattle area:Google calls the Puget Sound its home away from home. The search giant iscurrently on track to occupy roughly 1 million square feet of office by 2019,far and away from the small offices it occupied in Seattle and Kirkland in themid-2000s. The Mountain View-based company made a monumental move earlier thisyear, when it announced it was leasing all 600,000 square feet of office atVulcan Real Estate’s newest South Lake Union project, Lakefront Blocks. Plansare to move employees over from Fremont to the new buildings in early 2019. Onthe Eastside, Google has been expanding its campus in Kirkland. SRMDevelopment expanded the campus with another 180,000 square foot officebuilding earlier this year, adding to its existing 200,000 square feet. Googlealso has a 60,000 square foot office up north in Bothell. There are now over2,000 Google employees working in Seattle and Kirkland.Facebook came to Seattle in 2010. Initially opening a small office near PikePlace Market, the standard bearer for social media expanded from 2 employeesback then, to over 1,000 today. The company was growing so fast in 2015 in itsMet Park office along I-5, it had to lease an entire new building near Amazon,more than quadrupling its leased space in Seattle. The company has alreadyhinted that they will likely need more large blocks of space in the future inSeattle. Jay Parikh, VP of Engineering, clarified the differences betweenWashington’s and California’s tech climates. “We’ve been growing veryaggressively here,” Parikh said to GeekWire, pointing out that the market fortalent here is competitive, but not quite as competitive as Silicon Valley.Facebook is accelerating Seattle operations at an astronomical rate. Itsvirtual reality company, Oculus VR, is also expanding, in Seattle and Redmond,surpassing 100 employees in early 2015. But things are still full speed aheadin the Bay Area. The company is already planning a 962,000 square foot officedevelopment in Menlo Park to house an additional 6,550 employees, more thandoubling its current 6,000 employees in the city. Sources are also suggestingthat the social media behemoth is considering an expansion into San Francisco,possibly leasing hundreds of thousands of square feet in the tech-centric SoManeighborhood.Even though Salesforce would miss out on acquiring social networking site,LinkedIn, that did not stop the San Francisco-based company from landing thefirst big deal in downtown Bellevue during this construction cycle. The cloud-computing firm entered the Seattle market in 2011, leasing half a floor atWest 8th, a Class A tower Amazon leases near its campus. Rapid growth demandedthe company expand to a full floor. Then, Salesforce signed a lease for 85,000square feet at the brand new 929 Office Tower in Bellevue, developed byTrammel Crow. Plans are to move Seattle employees to Bellevue this fall.Oracle’s cloud division has been expanding its operations in Seattle sincearriving in 2014. Larry Ellison’s Redwood City-based company is in a fiercecompetition with Amazon and Microsoft right now as it struggles to keep upwith the revenue growth posted by Amazon Web Services and Microsoft Azure.Oracle still claims to be the king of databases, but the way things are going,the two Seattle-area companies could continue gobbling away market share.There are already over 900 Oracle employees in Seattle and Bellevue. Thecompany occupies a Colliers International listing in downtown Seattle, CenturySquare, where it is growing rapidly, as well as a floor at One BellevueCenter. Seattle, Washington has become the front line in the epic cloud warcurrently underway up and down the West Coast.DocuSign is located and growing in another downtown Seattle Colliers listing,999 Third. Though the electronic signature company was originally founded inSeattle, it has since moved its corporate headquarters to San Francisco,though would always retain a sizable Seattle presence. Its first significantdowntown Seattle office was in The Columbia Center. It would soon grow out ofthere and move to Russell Investments Center, the tower Zillow now calls itsheadquarters. By the end of 2015, it would outgrow its 88,000 square feet ofoccupied space, signing a lease for 118,000 square feet at 999 Third. Thetrajectory of this company suggests more growth to come.The trend of technology companies from California opening up engineeringoffices in Seattle shows few signs of slowing down. In addition to localsAmazon, Microsoft, Redfin, Zillow, Tableau, and Avvo, Bay Area tech firms keepcoming back for more. Rumors are circulating around the real estate communityabout Apple being close to completing a deal in Bellevue. The Cupertino-basedcompany would lease all of Centre 425, a 350,000 square foot tower underconstruction in downtown Bellevue, developed by Schnitzer West. Others havesuggested the secret tenant could be Amazon, the first time the e-commercecompany would open up a local office outside the city of Seattle. This wouldbe a big boost for downtown Bellevue, a submarket some investors have beenscared away from, especially after the news broke that Expedia will be movingto Seattle’s waterfront by 2020. At the end of the day, downtown Bellevue is aworld-class technology hub, with over 25,000 technology workers, and it willlikely lure another big-time tenant in the near future.Looking at the largest office deals over the last seven-plus years, it isclear that tech tenants are driving the market, bringing the region to a lowvacancy of 8.7 percent in Q2 2016. As a percentage of leases signed over50,000 square feet during 2009, tech tenants only made up 30 percent of deals.Flash forward to the first half of 2016 and already over 80 percent of theleases signed so far have gone to technology companies. Some wonder if theregion is too reliant on tech firms for growth, however, companies like Amazonand Microsoft have been around since the dot-com bubble, and will continue tobe the anchors to a well-diversified regional economy.It simply makes sense for tech companies to take advantage of what theSeattle-Bellevue area has to offer. Talent has been pouring out of Redmond-based Microsoft since the mid-1970s, leading to a flurry of former employeesstarting their own businesses, including the Bellevue/Seattle-based Expedia,founded by former Microsoft executive Richard Barton (who also happened tofound a little company called Zillow). The same pattern is now playing out atAmazon, as Jet.com, Pro.com, and Flipkart were all founded by formerAmazonians.CEOs seem to be the only ones who can afford to live in The City by the Bay.Home values in San Francisco are more than double Seattle and Bellevue. SanJose is almost as bad at almost double Seattle-area home values. Apartmentrents are no better. In 2015, rents rose fastest in Portland (over 16percent), San Francisco (13 percent), and Denver (12 percent), according toPierce-Eislen. This is significant for Seattle, competing with these othertech hubs, but The Emerald City was right behind at almost 10 percent annualgrowth. Decision makers will take every aspect into consideration when lookingfor a new tech office to open up or where to target further growth – fromoffice rents to tech talent to apartment rents.The California companies flooding the Seattle market and subsequentlyexpanding is great for King County’s economy. And, this stream of new workersand companies could only accelerate if current trends in California continue.According to a report from Spectrum Location Solutions, about 10,000 companiesover the last eight years have left the state or shifted operations out of thestate to reduce costs. The report notes that California does not offerincentives to lure businesses and the business environment will be worsenedfurther if new taxes are imposed on businesses in 2016 and 2017.If the Apple / Amazon deal gets done in downtown Bellevue, it will be only thelatest in a string of Silicon Valley (or Seattle) companies doubling down ontheir future in the Seattle market. Apple’s recent acquisition of AI startup,Turi, signals that the iPhone maker could be ready to plant a flag in Seattle.Video game maker, Valve already made the biggest splash in Bellevue this year,leasing 225,000 square feet at Kemper Development’s under construction LincolnSquare II. This deal is just one example of local tech companies growing rightalongside its California competitors in the Pacific Northwest.Tech simply continues its dominance in office leasing. Amazon is on track tooccupy almost 12 million square feet of office in downtown Seattle by 2022 andmaybe more if it decides to venture into Bellevue. Cloud-based tax company,Avalara inked a deal for 133,000 square feet at the soon-to-be-delivered HawkTower in Pioneer Square. Redfin signed a lease for 113,000 square feet at therecently delivered Hill7, just down the street from Amazon’s South Lake Unioncampus. Zillow is also on a tear, taking up any space it can in RussellInvestments Center, as evidenced by its 113,500 square foot expansion signedin late 2014, setting itself up to occupy 268,500 square feet by early 2017.As Seattle sets itself apart from other tech hubs, companies from Californiaare increasingly drawn to the surplus of tech talent, slightly lesscompetition, and lower office and apartment rents.Will Seattle become the next San Francisco or Silicon Valley? Or will it setitself apart?What are the Largest Companies in Austin Today?Amazon, Apple, Oracle, Facebook, Indeed; these companies and more have filledthe headlines of commercial real estate news in Austin for years. Stories ofcompanies leasing huge swaths of office space, building new campuses andpreleasing years in advance have now become so common that they are moreexpected than they are surprising. But how much space do companies like theseactually occupy in Austin? Are they really becoming the dominant players inthe market, or do transactions with smaller companies still comprise the bulkof the leasing activity in Austin?Read Now: Why Austin, Texas Is One of the Best Cities for BusinessAs of January 2021, these are the largest companies in Austin, Texas:Rank | Company —|— 1 | 3M 2 | Amazon 3 | Amazon 4 | Amazon 5 | Amazon San Marcos Fulfillment Center 6 | AMD 7 | Apple 11 | Charles Schwab 12 | Dell Children’s Hospital 13 | eBay 14 | Electronic Arts 15 | VRBO 16 | Facebook 17 | Facebook 18 | Flex Health 19 | Google 20 | Google 21 | IBM 22 | Indeed 23 | Indeed 24 | Intel 25 | Katerra 26 | Oracle Corp. 27 | Oracle Corp. 29 | Solarwinds 30 | Tesla 31 | Visa 32 | General Motors 33 | BAE Systems 34 | Apple 35 | Apple 36 | Q2 37 | BigCommerce 38 | SailPoint 39 | ARM Inc. 40 | Accenture 41 | Athenahealth 42 | Atlassian Software 43 | Bazaarvoice 44 | Centene Corporation 45 | Cirrus Logic, Inc. 46 | EZ Corp 49 | Genesis Today 50 | Google Download a full-size version of this map.* * *Originally published on August 13, 2019In this special report, we answer these questions and more by looking at: * Companies with greater than 150,000 sf in Austin today (by industry and location) * How the Austin Metro Statistical Area (“MSA”) compares to other competitive cities in terms of large tenants * Which companies are expected to expand their presence in AustinMETHODOLOGYTo do this analysis, we utilized CoStar to identify the major companies in theAustin MSA and determine the total amount of square feet they currentlyoccupy. We limited our search to existing and under construction office spaceonly, and classified a “large company” as one with greater than 150,000 sf ofoffice space within Austin’s MSA boundaries. The same methodology was followedto identify large companies in other MSAs.
Large Companies in Austin Today
Today, Austin is home to 46 companies occupying greater than 150,000 sf ofoffice space. Combining them together, this adds up to roughly 24 million sf.For comparison, the total square feet of office space in the Austin MSA is 109million.Of these companies, 28 are publicly held, 12 are private and six aregovernment entities.As one would expect, more than half of these companies fall under the “tech”category, including names like 3M, Dell, Apple and Facebook. Being the statecapitol, government offices also occupy a significant amount of space inAustin, ranging from the City of Austin and Government of Texas to the IRS andDepartment of Veteran Affairs.While a number of these companies are newcomers to the Austin scene, just asmany have been here for the long haul. Even looking back to 2008, companieslike Dell, IBM, Apple and Whole Foods had already established a significantpresence in our city, each employing more than 1,000 Austinites.1Pictured: Third + Shoal (middle). Facebook is the main tenant in the new Third+ Shoal development in Austin’s Central Business District, now occupying over900,000-sf in Austin. (Photo from CoStar).A few insights can be gleaned from the graph above, the most obvious being theconfirmation that tech companies really are occupying a lot of space inAustin. They account for 13.3 million of the 24 million sf total and hold thetop five spots in the ranking of largest Austin companies.Another insight is that there are a number of companies with significant leaseholds in Austin that, frankly, we rarely hear about. General Motors (“GM”),for instance, has more than 700,000 sf of office space spread across threebuildings, yet has only been mentioned in six commercial real estate articleson the Austin Business Journal since the start of 2018. Facebook, incomparison, has received a mention in at least 30 articles in 2019 alone as ofJune. While this is obviously due in part to the fact that GM has remainedlargely steady in its Austin real estate holdings while Facebook has beenactively expanding, one would still expect that a company of GM’s size wouldbe mentioned a little more frequently.
Locations of Large Companies in Austin
The distribution of the large companies in Austin offers more insight intowhere these large companies are looking for and locking that space down.As with many cities, Austin’s CBD is a hotbed for large tenants. The likes ofFacebook, Indeed and Google all call downtown Austin home, taking significantamounts of space in some of Austin’s biggest high-rises. Some of that largeleasing activity has even begun to cross to the east of IH-35 into EastAustin, as exemplified by Google’s lease at Plaza Saltillo.Looking closer, it becomes clear that the other hotbed of large leases inAustin is in the Northwest submarket, primarily concentrated in the Domain.This is not a surprising insight for anyone who has been keeping tabs on thesuccess of Austin’s “second downtown,” but it does give visual confirmation ofa trend we have been discussing for some time. A number of companies occupyingspace downtown also choose to open a second location at the Domain (thinkFacebook, Indeed, etc.) to better access the growing talent pool in NorthwestAustin.Both the CBD and Domain are the easiest location in Austin to deliver denseoffice space, likely explaining why large companies have chosen to locate inthose areas. You will also notice a number of unique pockets dotted aroundAustin, including the spaces occupied by the IRS in the southeast and Dell’scampus near Round Rock, where individual companies have managed to securelarge spaces in a specific building or campus.
How the Austin MSA Compares to Other Competitive Cities
While this information is all well and good, it only paints part of thepicture. Knowing the largest companies is one thing, but how much influence dothose companies have on the office market in Austin?To better understand this, we looked at the total square feet occupied by thelargest companies in the Austin MSA and compared that to the total square feetof office space existing today. We repeated this analysis across a number ofdifferent MSAs to show how Austin compares to other locations.Austin’s 46 largest companies take up approximately 22% of the MSA’s officespace. This puts it very close to other competitive markets like Charlotte,North Carolina and Dallas-Fort Worth (“DFW”) and is well below San Jose,California, another one of the country’s technology hubs. To put this anotherway, for every five square feet of office space in Austin, one square foot isoccupied by a “large company”.However, the real comparison begins when looking at each market’s diversity interms of the average square feet per company. Spreading the 24 million squarefeet of space occupied by large companies in Austin across the MSA’s 46companies, the average space occupied per large companies comes out to roughly521,000 sf per company. This puts Austin at the second highest average in ourcomparison set, falling only behind the San Jose MSA’s average of roughly684,000 sf.
So what does this mean? In simple terms, Austin’s economy is more exposed
to the fates of large companies.With fewer companies occupying more space on average, it can be inferred thatthe leasing activities of these companies are overweight drivers of demand. Ifthat demand were to suddenly cease, the effects would be felt more in Austinthan it would be in a market like DFW where there are 167 “large” companiescompared to Austin’s 46.
Which Companies Are Expected to Grow in Austin?
The other aspect of this analysis is to not only look at what the largecompanies in Austin are today, but what companies are expected to grow inAustin in the future. Whether through proposed developments, major preleasesor announcements of expansions, there are a number of companies on this list.First, we’ll start with the obvious. Apple’s plans to build its 3 million sfcampus in Northwest Austin (2 million of which is planned to be office space)was major news in 2018 and will position Apple far above the other largeoffice occupiers in Austin in terms of square feet occupied.2 Because theproject is still proposed, it was not included in Apple’s total square feetnumber in the “Tenants with More Than 150,000 sf in Austin” graph above. Withconstruction slated to begin in August 2019, we shouldn’t have to wait long tobegin seeing the increase in jobs promised in Apple’s press release.3James Avery, the Texas-based jewelry company headquartered in Kerrville, hasannounced plans to open a second headquarters4 in Cedar Park. No details havebeen given yet on the square footage of the planned headquarters, but at anestimated 100 new employees and $13 million investment, the new developmentwill at least push James Avery closer to the 150,000-sf cutoff for a “largecompany” in Austin when combined with its existing 16,000 sf of office spaceat Tower of the Hills.5Another potential expansion at the top of everyone’s mind is WeWork’s. Thecompany acquired Waller Park Place at the end of 2018, which holds thepotential for roughly 3 million sf of development depending on what type ofproject is pursued.6 The site is in a prime location for development, but nonews has surfaced yet of whether WeWork has decided to build its own officetower or pursue some other venture. There have also been discussions thatWeWork has been considering a development at an alternative site prior topursuing Waller Park Place, so only time will tell how much higher on the listof large companies in Austin WeWork will find itself.Pictured: WeWork’s Domain office. The company recently acquired Waller ParkPlace, which holds the potential for roughly 3 million sf of development. Thiscould launch WeWork higher on the list of large companies in Austin. (Photo byScott Mason Photography)Zoho, a software company based in California that is currently occupying13,686 sf of office space in Austin, is planning to open a 100,000-sf officein southeast Austin in the coming years.7 The company plans to add as many as500 new jobs to its Austin team as a part of this expansion, and at 375 acres,the site should also offer room for future expansions.
It’s hard to say exactly how many jobs will be created as a result of
these coming expansions, but in Austin’s current job market we can be certainthat those jobs will be filled quickly.As of March 2019, Austin’s unemployment rate was a mere 2.7%, compared to 3.8%Texas-wide8, and although California Governor Gavin Newsom hopes companies andemployees will “start focusing on [the progress California is making] and notjust that 13.3% damn tax rate,” it would not be a surprise to see Californialicense plates filling the parking lots at these new offices.9
The numbers presented in this study make it clear that Austin has a sizeable(and growing) collection of large tenants occupying space throughout the city.Spread across a number of industries, these tenants, whether publicly owned,private or government entities, give interesting insight into the makeup ofthe Austin office market today.In our fast-paced, quickly evolving market it is hard to say what the resultsof a similar study would reveal ten years from now, but what we do know isthat, for the time being, Austinites should not be surprised to see the namesof some of the largest companies in the nation posted on the exterior of ouroffice buildings.To save a PDF of this report, download your free copy below.* * *1Source: Austin Chamber of Commerce – Major Employers 20082Source: Austin Business Journal – $1B Apple Campus Coming to North Austin3Source: Apple Press Release 12/13/20184Source: Austin American-Statesman – Hill Country jeweler James Avery plans$13 million second HQ in Cedar Park5Source: CoStar6Source: Austin Business Journal – Rolling in fresh $2B from SoftBank, WeWorkbuys chunk of downtown Austin7Source: Austin American-Statesman – Software maker Zoho moving HQ to Austin,adding hundreds of jobs8Source: Bureau of Labor Statistics9Source: Austin Business Journal – As companies flock from California toTexas, Golden State governor punches backThe tech takeoverWhen Hudson Pacific Properties purchased a majority stake in the WestsidePavilion in 2017, its executives saw an opportunity to convert the stagnatingmall, with its location near freeways and the Expo Line and its soaringceilings, into a “unique and exceptional” office space.Before embarking on a renovation that’s expected to cost $410 million, HudsonPacific, which is headquartered in Los Angeles but has offices in seattle,Silicon Valley, and San Francisco, contacted its clients. Would any of themwant to move into the once-iconic mall?“Our expectation is not to lease it that early in the process,” says AlexVouvalides, Hudson Pacific’s chief investment officer. “You hope to, but beingrealistic, you assume that it’s going to happen at a later date.”Its clients happened to include Google. And, in January, the tech giant putits name on the lease for all 585,000 square feet of the pavilion’s futureoffice space. Google’s move-in date? Three years from now in 2022.It was another big deal for Hudson and the latest in a flurry of leases signedby some of the biggest tech and new media companies in the world looking toput down substantial roots in LA.Over the last two years, Facebook, Apple, Amazon, Netflix, and Google—alsoknown as FAANG—have collectively laid claim to at least 3.35 million squarefeet in Los Angeles, according to Costar. That’s more than double the squarefootage of the 71-story US Bank Tower.That square footage is impressive, but less astonishing when compared totraditional production studios with stages and back lots (the 40-acre CBSStudio Center in Studio City, for example). What is surprising, industryprofessionals say, is that the tech giants are leasing offices well beforethey can move in.For companies looking to make their own mini campuses, the Los Angeles marketis “very competitive right now,” says Jeff Vertun, a leasing specialist withCBRE. “Large blocks of space are not in high availability.”Getting space in a prime area can hinge on making contact with a propertyowner or developer early on—sometimes several years before a complex is evenbuilt, Vertun says.Netflix offices on Sunset Boulevard. The streaming company has also leased a13-story high-rise under construction across the street, as well as 355,000square in Academy on Vine, expected to open in 2020. GC ImagesAs entertainment continues to shift toward streaming media, companies likeNetflix and Amazon are looking to produce more content in the historicalcradle of movies and TV.It’s not just that Los Angeles is the capital of entertainment. The centrallocation of Hollywood, in particular, and its proximity to transit, has onlyboosted its popularity, says Vouvalides.The same could be said of Culver City, where Amazon has leased 530,000 squarefeet at the Hackman Capital-owned Culver Studios, scheduled for completion in2021. Amazon has claimed an additional 75,000 square feet at Hackman Capital’snearby Culver Steps development, which is expected to open later this year.Apple has also staked a claim in Culver City, where the company has leased anentire 128,000 square foot building under construction now near the city’sExpo Line station. It already leases 85,500 square feet in Culver City, in abuilding near the Expo Line’s La Cienega station.Google added 100,000 square feet to the Spruce Goose Hangar in Playa Vistabefore moving in at the end of last year. In the background, a huge vacant lotthat Google also owns. Connie Zhou, courtesy of GoogleBefore it signed onto the Westside Pavilion in Rancho Park, on LA’s Westside,Google had just moved employees into Playa Vista’s Spruce Goose hangar. Thehangar is about four times the size of Frank Gehry’s Binoculars building inVenice, where it has held offices since 2011.Just a few blocks from the Spruce Goose, Facebook is reportedly leasing260,000 square feet in The Brickyard, a stylish new complex in Playa Vista.In Hollywood, Netflix announced in November that it would take up all 355,000square feet of available office space in the Academy on Vine development offVine Street, slated to open in 2020.“Our expansion into the Academy on Vine property further deepens ourconnection with the Los Angeles and Hollywood communities,” Netflix CFO DavidWells said in a statement at the time.The month before, the streaming company signed a lease for a 13-story towerunder construction on Sunset Boulevard, near the 101 freeway. It already takesup a 14-story high-rise across the street. Both buildings were developed byHudson Pacific.“We have a good sense of what we need to do to make sure we can attract[these] types of tenants,” Vouvalides said.That includes layouts that offer easy transitions between indoors andoutdoors, maximizing natural light inside, and building lots of outdoor spacefor workers.The consolidated, mini-campus-making approach that the FAANG companies aretaking throughout LA is a contrast to the piece-meal tack taken by Snap, theparent company of Snapchat, which caused a stir in Venice around 2015, when itbegan to scoop up storefronts and traditional office space across theneighborhood.That model disrupted the legendarily eclectic beach community. Locals arguedthe company’s presence pushed out local businesses and organizations,including a youth shelter; raised rents; and fueled a real estate frenzy thatled to little rundown bungalows selling for upwards of $1 million.Residents staged protests in front of the company’s properties, andultimately, Snap largely relocated to more centralized offices in SantaMonica.In all, Snap’s square footage in Venice was under 200,000 square feet—just asmall fraction of the space that companies like Netflix and Amazon are eachset to occupy in LA. In Hollywood alone, Netflix has gobbled up 1.1 millionsquare feet of office space.But with it and the other tech giants not set to expand for a couple moreyears, it’s too soon to say how the market and neighbors will react.How Non-Tech Companies Get by in Tech-Frenzied San FranciscoFlickr/Nicholas RaymondIn the past six years San Francisco’s tech-fueled economy has pushed rents toall-time highs, sparked a massive building boom, and made the Bay Area one ofthe most dynamic and expensive regions in the world.Tech companies have accounted for virtually all of this expansion over thepast several years, and justifiably most of the media coverage on the SanFrancisco economy has focused on how technology companies have affected thereal estate market and the region. There’s a worthwhile conversation to be hadabout whether the San Francisco economy is too exposed to tech; not unlike theRust Belt was to manufacturing, or Russia and the Middle East are to oil.A commonly overlooked reality is the fact that the San Francisco economy ispretty diverse. Companies like Salesforce, Twitter, Uber and Airbnb havefueled massive amounts of job creation and absorption of office space.However, if one looks at who’s occupying the 75+ million square feet of officespace that is leased in San Francisco, tech companies occupy less than half ofthe space. So how are more traditional companies navigating a commercial realestate landscape that has been completely transformed by the booming techcompanies?
Corporate Behemoths Provide Stability
In addition to the aforementioned tech stalwarts, the largest employers in SanFrancisco include companies like Levi’s, The Gap, PG&E, Williams Sonoma, WellsFargo and Charles Schwab. While these companies employ large numbers of peopleand lease or own significant amounts of real estate, they tend to not beactive players in the real estate market, and in some cases have leased orowned the same buildings for decades.They provide an underlying base of stability for the market, but for the pastdecade generally haven’t been consumers of space in S.F. Occasionally,companies like Schwab have cut back on large blocks of space – although in themost recent case for Schwab that space at 215 Fremont was immediately absorbedby a 300,000sf expansion by Fitbit.While the overall trend with these types of companies is stability, recentlysome large users have re-evaluated how they use their space in San Francisco.McKesson, headquartered in San Francisco since the 1960s and with roots datingback to New York in the 1830s, is currently pursuing a sale of itsheadquarters building at 1 Post in the financial district. This sale wouldkeep their corporate headquarters in San Francisco, but downsize theirfootprint in the building, while cashing out of a long-held real estate assetthat has appreciated considerably in the last few years.Justin Sullivan/Getty ImagesUnion Bank is evaluating a similar strategy at their 400 California buildingin the heart of the financial district. A historic bank building overshadowedby a hulking 1960’s concrete high-rise, the structure would require asignificant renovation in order to be marketable office space.Union Bank and McKesson offer examples of long-time San Francisco companiesre-evaluating their real estate needs in a changing market. However, theoverall theme with similar large traditional employers in San Francisco ishunkering down in their current location and not making significant waves inthe real estate market.
David Vs. Goliath
In the San Francisco Bay Area, tech companies are Goliath and non-techcompanies are David. How does David compete?For most of the non-tech companies, San Francisco’s expensive rents and highcost of living are huge challenges. However, there are changes happening inSan Francisco’s extremely competitive commercial real estate market that helpmake this scenario more favorable to those non-tech businesses.Pedestrians walk by the future site of the Salesforce Tower in 2015. APFirst, landlords are concerned about being overexposed to tech tenants.Landlords have reaped the rewards of tech companies causing rents to doubleover the past 6 years, but they also want to make sure they’re making a dealwith a tenant that will be paying rent for the next 6 years. That makesestablished businesses increasingly attractive as tenants.In many cases, we’ve seen landlords willing to offer more attractive terms toa more traditional, stronger credit business – perhaps a slightly cheaperrent, free rent or more generous tenant improvement allowance.
Corporate Behemoths Provide Stability
In addition to the aforementioned tech stalwarts, the largest employers in SanFrancisco include companies like Levi’s, The Gap, PG&E, Williams Sonoma, WellsFargo and Charles Schwab. While these companies employ large numbers of peopleand lease or own significant amounts of real estate, they tend to not beactive players in the real estate market, and in some cases have leased orowned the same buildings for decades.They provide an underlying base of stability for the market, but for the pastdecade generally haven’t been consumers of space in S.F. Occasionally,companies like Schwab have cut back on large blocks of space — although in themost recent case for Schwab that space at 215 Fremont was immediately absorbedby a 300,000sf expansion by Fitbit.While the overall trend with these types of companies is stability, recentlysome large users have re-evaluated how they use their space in San Francisco.McKesson, headquartered in San Francisco since the 1960s and with roots datingback to New York in the 1830s, is currently pursuing a sale of itsheadquarters building at 1 Post in the financial district. This sale wouldkeep their corporate headquarters in San Francisco, but downsize theirfootprint in the building, while cashing out of a long-held real estate assetthat has appreciated considerably in the last few years.Union Bank is evaluating a similar strategy at their 400 California buildingin the heart of the financial district. A historic bank building overshadowedby a hulking 1960’s concrete high-rise, the structure would require asignificant renovation in order to be marketable office space.Union Bank and McKesson offer examples of long-time San Francisco companiesre-evaluating their real estate needs in a changing market. However, theoverall theme with similar large traditional employers in San Francisco ishunkering down in their current location and not making significant waves inthe real estate market.
David Vs. Goliath
In the San Francisco Bay Area, tech companies are Goliath and non-techcompanies are David. How does David compete?For most of the non-tech companies, San Francisco’s expensive rents and highcost of living are huge challenges. However, there are changes happening inSan Francisco’s extremely competitive commercial real estate market that helpmake this scenario more favourable to those non-tech businesses.First, landlords are concerned about being overexposed to tech tenants.Landlords have reaped the rewards of tech companies causing rents to doubleover the past 6 years, but they also want to make sure they’re making a dealwith a tenant that will be paying rent for the next 6 years. That makesestablished businesses increasingly attractive as tenants.In many cases, we’ve seen landlords willing to offer more attractive terms toa more traditional, stronger credit business — perhaps a slightly cheaperrent, free rent or more generous tenant improvement allowance.