A new wave of fast-growing companies is making its presence felt in San Francisco, taking up more office space in the city as the previous generation of companies downsizes. Recent reports reveal that Pear VC, a venture firm that recently closed its largest fund ever, has secured a 30,000 square feet sublease of “Class A” office space in San Francisco’s Mission Bay neighborhood from Dropbox, the renowned file-storage giant.
A new generation of fast-growing companies is expanding their footprint in San Francisco, taking advantage of the city’s commercial real estate market. Subleasing offers cost-effective opportunities for these companies, especially in prime areas such as Mission Bay. Tech companies, in particular, are expected to recover faster and drive growth in the city in the coming years.
OpenAI and Anthropic Secure Subleasing Deals
Joining the trend of expanding in San Francisco, OpenAI, the creator of ChatGPT, recently subleased a collective 486,600 square feet in two buildings from Uber. OpenAI’s move comes as Uber looks to “right-size” its operations. Another company, Anthropic, reported that it closed a significant subleasing deal to occupy a 250,000-square-foot building in downtown San Francisco, formerly the headquarters of Slack.
It is interesting to note that Anthropic has a connection to Salesforce, which acquired Slack in 2021. Additionally, Pear VC co-founder Pejman Nozad, who had previously sold Persian rugs to Silicon Valley luminaries, was one of the early investors in Dropbox. However, Nozad states that the decision to secure Pear VC’s new space was purely a business deal and not influenced by his connection to Dropbox.
Opportunities in San Francisco’s Real Estate Market
Securing subleases in prime areas like Mission Bay and the Financial District of San Francisco is currently a cost-effective option for well-funded companies on the rise. According to Colin Yasukochi, an executive director at CBRE, sublease rates range from $60 to $80 per square foot. Startups willing to sublease space with less than five years remaining on the lessee’s contract can negotiate better terms. Comparatively, before the pandemic, office lease rates surpassed $75 per square foot in September 2019.
The current reality in San Francisco’s commercial real estate market is that buildings are experiencing a 35% vacancy rate and more tenants are leaving than coming in. However, there is an impending tipping point, as evident from the negative net absorption of 1.85 million square feet in the third quarter of this year. The market demand for office space is at its highest increase since the first quarter of 2020, with companies like OpenAI being catalysts for this shift.
Predicting Tech Industry Growth in San Francisco
Colin Yasukochi anticipates that if the economy improves in the second half of next year and interest rates decline, tech companies, in particular, will recover faster and drive growth in the city. Tech companies were quick to cut costs during the pandemic but are also known for being early to grow. Yasukochi believes that no other industry generates the level of growth that the tech industry does.
On a final note, Yasukochi does not expect this growth to be concentrated in San Francisco’s Hayes Valley. Despite the neighborhood’s resurgence and its reputation as “Cerebral Valley” due to its AI communities, most teams are currently working remotely or in casual settings like restaurants and bars. Office space in Hayes Valley is limited, making it less attractive for companies seeking a more formal working environment.