Next generation companies expand in prime San Francisco locations | TechCrunch

ten years ago, Pear VCIt was then a small new venture capital firm operating out of a nondescript Palo Alto office filled with bright, computer-themed art.Last week, the company closed largest fund May to present — Quietly signed an agreement to sublease 30,000 square feet of “Class A” office space in San Francisco’s Mission Bay neighborhood from file storage giant Dropbox.

The company is one of many fast-growing companies taking up more space in San Francisco as previous generations of companies shrink their physical footprints.

As first reported by the San Francisco Chronicle report Last week, OpenAI, the creator of ChatGPT, just subleased two buildings from Uber, totaling 486,600 square feet. The ride-sharing giant initially leased four buildings across the street from Dropbox and will continue to occupy two of the buildings. This is “right size”.

OpenAI competitor Anthropic has also reportedly just shut down Substantial sublease transactionIts plan: Take over the entire 250,000-square-foot building in downtown San Francisco that formerly housed Slack’s headquarters.

Salesforce is an investor in Anthropic, which acquired Slack in 2021. Meanwhile, Pear VC co-founder Pejman Nozad wrote one of his first small checks to Dropbox, having just arrived in the U.S. from Iran to sell Persian rugs to Silicon Valley. Big guys.

However, such subletting does not necessarily begin with a handshake agreement. When asked if Nozad chose Pear’s new space because of its connection to Dropbox, he scoffed. The office has space for more than 200 desks, including 20 plus desks. meeting and call rooms, and dedicated event space to host presentations — “This is a business for them,” Nozad said. “The founders have no involvement in it. As you know, I’ve been selling rugs for 17 years. , so I have some negotiating skills,” he added with a laugh.

Of course, if you’re a well-funded, rising company, now is a good time to strike a sublease agreement. Colin Yasukochi, executive director of commercial real estate services firm CBRE, said subleases are being offered in prime locations such as Mission Bay. Current prices in the city’s Financial District are $60 to $80 per square foot. The higher the floor and the richer the facilities, the higher the price. The better the terms are for startups willing to sublease space with less than five years left on the tenant’s contract (because they’ll need to lease again elsewhere in the near future.) In contrast, in Office leasing rates exceeded $75 per square foot in September 2019, before the pandemic upended the city.

There’s no shortage of options right now, with San Francisco’s commercial building vacancy rate currently at 35% and more tenants leaving the market than coming in.

Dropbox originally leased the entire 750,000 square feet of space in the building it currently occupies, but it never completely filled it and it began more aggressively reducing its use after the COVID-19 pandemic hit.It paid $32 million in late 2021 termination This is part of its 15-year lease; it subleased approximately 200,000 square feet of space to two different life sciences companies: Vir Biotechnology and BridgeBio before newly subletting the space to Pear VC. It’s less than half yet.

This week, Adobe listed half of its lease space in San Francisco’s Showplace Square neighborhood and is currently seeking to sublease it 156,000 sq. ft. Spanning three floors of a building it once occupied.

But a turning point seems to be in sight. According to data from CBRE, San Francisco’s “negative net absorption” in the third quarter of this year was 1.85 million square feet; at the same time, market demand reached 5.2 million square feet, which is the highest since 2020. The highest increase since the first quarter.

Much of this shift can be traced to companies like OpenAI, Yasukochi said. He said an influx of new companies is starting to set up shop because of the opportunity to rent trendier spaces at the same or better prices than a few years ago. “This is a huge opportunity for companies that are trying to bring employees back,” Yasukochi said. (OpenAI CEO Sam Altman has long said he believes that when employees convene in person.)

In fact, Angone predicts that if the economy improves and interest rates fall in the second half of next year, tech companies will be able to recover more quickly and lead to a recovery across the city. “Employees, real estate and other costs,” Yasukochi said. He also said that while technology companies often “cut expenses early, they also start growing early. I don’t see any other industry that generates as much technology as it can.” Achieved growth.”

Worth noting: Angone doesn’t think these tech companies will necessarily grow in San Francisco’s Hayes Valley. Although the small, shop-lined community has revived interest in San Francisco this year and eagerly embraced the nickname “Brain Valley.” He observed that in the AI ​​community, most teams “meet in restaurant clusters and bars and work in apartments.”

The reality, Angone continued, is “there’s not a lot of office space out there.”

Above: 1800 Owens Street, San Francisco, where Dropbox is headquartered and is now home to Pear VC’s San Francisco offices.

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