Here’s a visualization of all the major commercial real estate deals involving the tech industry and San Francisco’s SOMA district over the past three years, thanks to Stamen Design and broker Kalin Kelly, who finds space on behalf of tech companies and nonprofits.
The point of this visualization is not a surprise. It’s known that there are lots of tech companies in the SOMA neighborhood of San Francisco.
“What I wanted to convey with this piece was this huge trend or movement south into SOMA. Tech makes up 60 percent of the office space in the neighborhood,” said Kelly, who predicts that companies will start moving into the West SOMA area between 5th and 10th street. “Maybe 5 percent of space is actually available. There’s not a lot there and it’s slim pickings for growing companies.”
Kelly and Stamen Design’s founder Eric Rodenbeck sit at the intersection of a complex debate about how excruciatingly limited space should be used between tech companies, non-profits and the arts. Rodenbeck helms one of the leading studios in the field of data visualization and is buying up buildings to permanently set aside for arts groups like Counterpulse through a project called CAST, or the Community Arts Stabilization Trust.
“If you don’t have galleries and space for performances, there will be no there there to it,” Rodenbeck said.
His effort has been accelerated and complicated by an influx of tech companies into the city, which have pushed commercial office space rents to around $67 per square foot for top Class A space. That’s pretty much equal to the dot-com bubble peak.
The cost pressures are so intense that a deal to build a mixed-use project with housing and an arts center in the Tenderloin fell apart this week after two years of effort between the developer and the city government.
As recently as five years ago, the technology industry’s center of gravity was down on the peninsula, somewhere around Palo Alto. That’s where it has mostly been for the last half-century, although there was a group of dot-com era startups that were centered in the city 15 years ago.
So how did this migration happen? Some of it is part of a nationwide trend, where urban city centers have seen a 0.5 percent increase in jobs per year between 2007 and 2011 while the job creation in the periphery has declined or stagnated, according to this study by City Observatory.
Some of the migration is specific to the Bay Area. Job growth in Silicon Valley and San Francisco has outpaced almost every other metropolitan area in the country. The cities in the South Bay are equally stressed for both office and residential space, with Mountain View entering tense negotiations with Google as it prepares to announce plans for a new headquarters this week.
The industry’s biggest successes founded a decade ago or more like Facebook, Google and LinkedIn are all headquartered on the peninsula. But after about 2006 when Twitter was founded, the major companies start — and grow up — in San Francisco. Voters also altered San Francisco’s tax structure to be more in line with what other comparable cities do by switching from a payroll tax to a gross receipts tax.
As you can see on the map, there were a bunch of mid-size office deals in early 2012 from Airbnb to Yelp and Yammer. But the big one was Zynga in late 2012, when it moved into its 668,000 square foot headquarters around Showplace Square.
That was followed the next quarter by Salesforce in several deals across the northern part of SOMA and Square in mid-Market. Uber follows that with another lease for 88,000 square feet the following quarter and Google ends up being the biggest commercial real estate deal of 2013.
Between Google, Dropbox and Pinterest, 2014 was a total frenzy with more than a dozen major deals, all involving at least a hundred thousand square feet of space. Not only did Twitter finally move into its mid-Market headquarters, Uber straight up bought land for its headquarters while Salesforce set itself up to anchor the city’s tallest tower in 2017.
Kalin said that venture firms and technology companies need to be more active in real estate policy in the city, with rents often being the top line item for startups after talent. She pointed to a recent listing in South Park where a broker was fishing for a $120 per square foot rate, which is double the going rate in the city.
“If startup founders and VCs were more educated about the market, we wouldn’t be seeing $120 per square foot listings,” she said. “Tech companies don’t have to be rampant gentrifiers. They can also contribute to the civic vitality of the city and keep it a vibrant place.”
Indeed, the city is still in the process of planning changes to the “Central SOMA” area that may shift industrially-zoned land to office use and boost height limits, which has myriad consequences for tech companies and non-profits alike.