Will Tech Go Vertical?
We believe that question has been soundly answered by Salesforce’s record-breaking 714k SF lease (news which Bisnow broke) at the future 61- story Transbay Tower in San Francisco, the new landmark of that city.
Nearly 90% of all deals over 50k SF over the last two quarters came from the tech sector, says Boston Properties senior project manager of development Michael Tymoff. It’s no wonder tech's outgrowing SoMa warehouses it's historically flocked to and is willing to co-exist with professional services. One of the pioneers was Finnish gaming company Supercell, which signed for the top 52nd floor of 555 Cal in December.
Salesforce will be at First and Mission and hover over the incoming Transbay Terminal, being branded as the Grand Central Station of the West. (With fewer fuggedaboutits.) S.F. developers are prepping their high-rises for tech tenants, making sure floor plates can house higher densities LinkedIn’s gigantic 450k SF full-building lease (news which Bisnow broke) at Tishman's 222 Second demonstrates the migration of tech companies from Silicon Valley (LinkedIn will keep its Mountain View HQ), says Michael. Younger folks don’t want to work in a campus 25 miles outside of the city anymore. There are many other examples of the trend, read on.
As further evidence of this profound new trend, our Bisnow reporters around the country filed these additional stories.
NEW YORK: Google Wants More Space in NY
What will put this whole trend on steroids would be if Google, which is on the market in Manhattan for 600k SF, leases or buys a tower. (if only Google knew someone who was good with searches). It would be its fourth Manhattan location, but the tech giant faces a problem. Since buying the 2.9M SF 111 Eighth Ave in 2010 for $1.8B, smaller tech companies gravitated to the neighborhood. Google can't even occupy the entire building as its existing tenants don't want to leave. A miniscule number of blocks of space leave the company few choices but to partner with developers to spark construction on planned buildings in the massive Far West Side or World Trade Center areas or to take space in the recently completed 1 WTC or 4 WTC, Avison Young's Greg Kraut (above) tells us. All those options would put the hip owner of Silicon Valley's Googleplex in decidedly more institutional settings. Or, it could JV with a developer on a build-to-suit on a parking lot or old warehouse site near its Chelsea/Meatpacking District NY HQ.
CHICAGO: Tech is Returning to the Loop
Tech used to be all about edgy space in up-and-coming ‘hoods, but large contiguous blocks of creative loft space are getting harder to come by, MB Real Estate EVP Andy Davidson says. The price discrepancy isn't what it used to be (some loft spaces have hit $30/SF gross rents), and many tech firms can now afford more upscale and conventional properties, he tells us. (Many of which have high ceilings just asking for a creative space makeover.) Some examples of techies loving the CBD: GrubHub at 111 W Washington; Vibes Media at 300 W Adams; and coworking spaces Coalition | Loop at 18 S Michigan and Grind at 2 N LaSalle.
BOSTON: Tech in the Financial District
Landlords of ‘70s and ‘80s towers in the historic Financial District have been laying out the welcome mat for tech companies and growing start-ups filled with Millennials. The Silicon Valley’s PayPal Media Network found a “fantastic” match in late ’12 when it moved into 65k SF at International Place (long the premier Financial District office for traditional firms), says COO David Chang. PayPal's 160 employees—many young—like the access to transit, restaurants, other startups, and a growing VC community, he says. The landlord of the 1987 tower, the Chiofaro Co, sealed the deal by being flexibile in configuring the space and making another 65k SF of expansion space available.
Besides its central location and great transportation, for the first time in its 400-year history the Financial District is getting housing: thousands of new luxury apartments are under construction or in development. Now, it’s a live/work/play address. With many companies downsizing or moving to the trendy—and more expensive—Seaport, there’s available Financial District office space for tech newcomers. Last month, custom security software developer Rapid7 moved into 100 Summer Street (built in 1974) because it found a large block of space with expansion options that could be reconfigured for the way it works, says CIO Jay Leader. This is a “huge opportunity” to create a frictionless office with no high walls and few closed rooms that transmits the Rapid7 “culture and energy between groups.”
AUSTIN: It's About the Lifestyle
Tech is absolutely going vertical in Austin, says ECR’s Patrick Ley (here volunteering at the Ronald McDonald House of Austin with colleague Jason Steinberg), and that’s not just because there aren’t many warehouses to revamp there. He says it’s all about lifestyle—tech companies have a reputation for having a good time and offering amenities. A mixed-use environment is a great way to deliver that, which has many tech users flocking to Austin’s CBD. The average tech employee is 27, and can’t resist the ability to meander downstairs to happy hour and then walk home.
Many of the big names already office in Austin high-rises (Facebook’s been in the one pictured there since 2010), and most of those are expanding. Google just leased two floors in its second local high-rise, and is rumored to be eyeing up to 100k SF Downtown. Dropbox is completely revamping a building Downtown to expand from 30 to 200 employees. And the names keep rolling in, Patrick says. It’s rumored WeWork is searching for 50k SF, and MapMy Fitness has supposedly inked 35k SF in the Seaholm Power Plant redevelopment under construction. And Mike says the vertical trend works in Austin because its casual atmosphere means the creative class and professional services can coexist quite nicely. (Austin’s lawyers might not wear flip flops, but they also don’t wear ties.)
Parkway Properties, which owns half of Austin CBD’s Class-A office product, already hosts eight floors of creative class in its 300 West 6th tower. We snapped directors of leasing Andy Smith and Mark Miller bookending managing director Mike Fransen showing off their own creative office in Austin’s iconic Frost Bank Tower. It's less than half the size of the previous leasing/management office, with exposed ceilings and retro lighting tech companies often favor to show them they can be funky even in a high-rise. In the same vein, Parkway is revamping its retail, partnering with Live Oak with an emphasis on quirky local retailers to better serve the new wave of creative office users. (Forget Dunkin Donuts—Frost has a Houndstooth Coffee with a cult following.) The trio tells us going into institutional property a one significant draw: Portfolio landlords like Parkway can offer growth opportunities they can’t find in a warehouse. That’s a perk for tech companies in their early days of explosive growth.
DC: Tech Giants Take A Different Path
Washington's got plenty of historic office buildings that tech startups are gobbling up. But in the last year, two tech giants have opted for space in traditional office buildings. Last summer, Google (here's co-founders Sergey Brin and Larry Page) signed a lease for 54k SF at 25 Massachusetts Ave right near Union Station. Facebook also updated its DC space status in 2013 by taking 20k SF at the Warner Building in the East End. Historic and architecturally classic buildings in DC neighborhoods like Chinatown may seem like a no-brainer for any tech firm, but industry experts say they often have wacky floor plates that can't support the operations of behemoths like Google or Facebook.