Taking inventory of Big Tech’s pullback from SF office space

🌈 Abstract

The article discusses the impact of the COVID-19 pandemic on the tech industry's office space in San Francisco. It examines how major tech companies like Uber, Airbnb, Meta, and Salesforce have significantly reduced their office footprint in the city, leading to a hollowing out of the downtown area. The article explores the factors that drove the previous real estate boom and how the current downturn has affected the city's commercial real estate landscape.

🙋 Q&A

[01] The Tech Industry's Retreat from San Francisco

1. What are the key examples of tech companies reducing their office space in San Francisco?

• Meta listed all 34 floors (435,000 square feet) of its office space at the 181 Fremont skyscraper for sublease after announcing mass layoffs.
• Uber put a portion of its massive Mission Bay headquarters campus up for sublease, with two buildings eventually being leased by OpenAI.
• Salesforce said it now owns or leases less than 45% of the office space it had the previous year, down from 1.6 million square feet to 900,000 square feet.
• Data shows that among the top 20 tech companies in San Francisco, at least four have completely eliminated their office footprint, and another company reduced its space by over 1 million square feet.

2. What factors drove the previous real estate boom in San Francisco?

• Low interest rates and the explosion of cloud computing, social media, and other technologies led to expectations of continued growth in funding and headcount, causing some companies to commit to proposed but unbuilt office sites.
• Tech companies were the most important drivers of the real estate boom, occupying the best spaces and paying top-tier rents.

3. How has the current situation affected the commercial real estate landscape in San Francisco?

• The combination of tech companies retreating and the lack of new tenants has led to a significant increase in office vacancy rates, with estimates ranging from 30% to 36%.
• This has resulted in a slowdown in the commercial real estate market, with landlords either having to walk away from properties or sell at steep discounts.

[02] The Path Forward for San Francisco's Commercial Real Estate

1. What are some examples of companies taking advantage of the lower rents in San Francisco?

• Nonprofit developer Bridge Housing and climate innovation coworking company 9Zero have leased office space in a building that was purchased at a 75% discount from its 2020 price.
• Dutch payment processing company Adyen has leased the entire building previously occupied by Pinterest, while HR automation software company Rippling has leased nine floors in a building once entirely occupied by WeWork.

2. What role does the AI industry play in the future of San Francisco's commercial real estate?

• Real estate sources indicate that AI companies, particularly those building applications on top of large language models, are still actively seeking office space in San Francisco.
• Estimates suggest that AI companies could lease up to 12 million square feet of office space in San Francisco by 2030.
• However, experts caution that the current tech industry turnaround will take a few years to broaden into a larger growth cycle, and that the potential for AI to drive the next real estate boom should be viewed with tempered expectations.