A new breed of companies has proliferated in the prime areas of San Francisco

Image Credits: Flad Architects

Ten years ago, Pear VC, then a small fledgling venture firm, emerged from a nondescript office in Palo Alto rich in bright computer-themed art. Last week, the dress – closed In May, the largest fund — quietly inked a deal to lease 30,000 square feet of “Class A” office space in San Francisco’s Mission Bay neighborhood — from file storage giant Dropbox.

It’s one of the fastest-growing outfits in San Francisco as the previous generation of companies shrinks its physical footprint.

As the San Francisco Chronicle first reported last week, ChatGPT creator OpenAI has leased two buildings totaling 486,600 square feet from Uber. The ride-share giant, which originally leased four buildings across the street from Dropbox as a group and continues to own two of them, told the newspaper it was the “right size.”

OpenAI’s rival – Anthroponic – has also reportedly closed a major ownership deal. The plan: to take over the entire space of a 250,000-square-foot building in downtown San Francisco that was formerly Slack’s headquarters.

Salesforce, which acquired Slack in 2021, is an investor in Anthropics. Meanwhile, Pejaman Nozad, Pejaman Nozad, the founder of PeerVC, wrote one of his first small checks to Dropbox when he was relatively new to America from Iran and was selling Persian rugs to Silicon Valley bigwigs.

However, such businesses do not necessarily start with a handshake. Nozad scoffed when asked if Pern’s new position zeroed in on his relationship with Dropbox. The office — which has space for more than 200 desks, has more than 20 conference and call rooms, and dedicated event space for hosting talks — “was a business deal for them,” Nozad says. “The founders are not involved. As you know, I have sold carpets for 17 years so I have some skills in negotiation,” he added with a laugh.

Certainly, if you are a well-funded company on the rise, now is a good time to conclude a lease agreement. Colin Yasukochi, executive director of commercial real estate services firm CBRA, said rents in prime locations such as Mission Bay and the city’s financial district currently range from $60 to $80 per square foot. The higher the floor and the more facilities, the higher the price. The deal will be better for startups who are willing to lease space for less than five years on a lease (since they’ll need to lease another space in the not-too-distant future). By comparison, office lease prices topped $75 per square foot in September 2019, before the pandemic overturned the city.

There is no shortage of options now. San Francisco’s commercial buildings are currently 35% vacant, and there are still more tenants than moving into them.

Dropbox originally leased 750,000 square feet of space in the building it currently occupies, but didn’t fully fill it and began to downsize significantly after Covid hit. It paid $32 million to partially terminate the 15-year lease at the end of 2021. Prior to leasing new space to Pear VC, approximately 200,000 square feet for two separate life sciences companies: Vir Biotechnology and BridgeBio. Still not half full.

This week, Adobe listed half of its lease footprint in San Francisco’s Showhops Square neighborhood and is looking to lease 156,000 square feet in one of the buildings it currently occupies.

But an important point seems to be in sight. According to CBRE data, there was a “negative net absorption” of 1.85 million square feet in the third quarter in San Francisco; At the same time, market demand reached 5.2 million square feet, the highest increase since the first quarter of 2020.

Much of that shift can come from companies like OpenAI, Yasukochi points out, which he says is starting to become a new outfit by showing the possibility of renting soft space at a different or better price than it was several years ago. Less finished areas and in the central areas of the city. “It’s a huge opportunity for companies trying to bring their workers back,” Yasukochi said. (OpenAI CEO Sam Altman has long said he thinks companies are more productive when employees gather in person.)

Indeed, if the economy improves and interest rates drop in the second half of the new year, tech outfits in particular will recover quickly and pull the city down with them. “Many tech companies have been able to quickly reduce excess staffing with real estate and other expenses,” Yasukochi said. He also said that tech apparel is typically “early to shrink but still to grow.” I have not seen any other industry generating the rate of growth that the technology is generating.

Worth noting: Yasukochi doesn’t think those tech companies will thrive in San Francisco’s Hayes Valley. Although the small-shop neighborhood has sparked a resurgence of interest in San Francisco this year and has eagerly adopted the moniker Cerebral Valley due to the AI ​​community’s focus, most of these groups are “meeting in restaurants and bars and working out of their apartments.”

The reality, Yasukochi continues, is that “there’s not a lot of office space out there.”

Pictured above: 1800 Owens Street in San Francisco, home of Dropbox’s headquarters and, now, Peer VC’s San Francisco office.

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