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Snap, Crackle, Pop: Tech Companies Gobble Up San Francisco Office Space

The SoMa neighborhood of San Francisco, with UC Berkeley in the background

San Francisco has continued to draw the nation’s technology startups with its office space, even as older, established companies leave the city. In March, health insurance company Blue Shield signed a 200K SF lease to occupy a tower in downtown Oakland, relocating 1,200 employees from its San Francisco headquarters, according to the San Francisco Business Times.

Blue Shield's departure comes as CoStar reports Slack Technologies will fill 230K SF at the Foundry Square IV building downtown, proving San Francisco's desirability for younger, technology-driven companies.

The city has seen sustained development of its tech scene as startups move from either Los Angeles or Silicon Valley to set up shop in one of America’s most in-demand urban centers.

The interior office space at 1151 Mission St. in San Francisco

Industry giants have looked to open offices in San Francisco. Snapchat has expanded beyond its LA beachfront property to take a dip into the tech talent pool in Northern California. Silicon Valley staple Google expanded into 166K SF of office space at 121 Spear St., in the heart of the Financial District. Drawn by the cultural attractions and diversity touted by city living, tech companies make up an increasingly larger share of the top leases.

Smaller startups, companies looking for 3K to 6K SF, have also fueled the market.

Front App, a shared inbox platform for collaborative team messaging, is one of the promising young companies headquartered at 1151 Mission St., a 12K SF SoMa property. It was the perfect space for the young web software company to expand its operations.

But growth in San Francisco comes with a caveat: the bigger the square footage, the tighter the demand. For companies that have passed initial startup size but do not yet have the buying power of industry leaders, there is less midsize space, specifically from 10K to 15K SF, available.

The exterior of 1151 Mission St. in San Francisco

Colton Commercial Partners, the brokers for 1151 Mission St., offered the first floor to second floor tenant Front App, to accommodate a larger team. The startup declined. When it reconsidered, the first floor was no longer available and Front App had to stay put. Colton is now marketing the first floor of the 4K SF brick-and-timber space at a rent higher than Front App's price range. Available for three weeks, the space has already received multiple offers. Startups are going to have to battle it out for their dream headquarters. 

Office vacancy dropped to just 10.8% in San Francisco in Q4 2016. While the 130 basis point drop was attributed to larger lease space coming offline, it reflects the growing difficulty for midsize companies in grabbing suitable office space. More established companies are also having a harder time convincing employees to move to a city known for its high cost of living.

As the Bay Area continues to swell with the world’s innovative minds, both living and office expenses will keep rising. Startups with a lack of creditworthiness or profitability add to the riskiness of the current office boom.

While tech’s hold on San Francisco office is red-hot and crackling, a pop could be around the corner.

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