San Francisco-Area Offices Seen Withstanding Startup Funding Ebb

  • CBRE says region to remain among strongest U.S. office markets
  • No slowdown `within the next year or two,' researcher says

The San Francisco Bay area is poised to remain one of the strongest U.S. markets for office leasing next year, according to a report by brokerage CBRE Group Inc., even as signs emerge of a slowdown in technology-startup funding and spending.

“There will come a time when there is a slowdown or cyclical downturn in the market,” said Colin Yasukochi, director of research and analysis at CBRE, which on Wednesday released its outlook for the technology industry’s influence on the Bay Area office market. “We don’t see that happening within the next year or two.”

Several young companies backed by venture capital have cut jobs in the past few months, including Evernote Corp., Jawbone Inc. and TangoMe Inc. Each has achieved a valuation of at least $1 billion from investors. Many venture capitalists recently began advising their startups to conserve cash as the fundraising environment cools, raising questions about whether office demand may falter.

Technology companies occupy 172 million square feet (16 million square meters), or 36 percent of the total inventory of office and research and development space in the Bay Area, which includes the city of San Francisco, the San Francisco Peninsula, Silicon Valley and the Oakland-East Bay region, according to CBRE, the world’s biggest commercial-property services company.

Leasing Surge

Within the tech universe, closely held companies with valuations of at least $1 billion, of which there are roughly 60 based or with a presence in the Bay Area, represent just 3.2 percent of tech tenancy, and just 1.3 percent of the total market -- even after the companies expanded their leasing 15-fold since 2009, according to the brokerage’s research.

The San Francisco metropolitan area led the U.S. for office rent growth in the third quarter from the second, according to property researcher Reis Inc. The area average of $40.77 a square foot after any landlord discounts compares with the national average of $24.77 a square foot. Within the U.S., only New York and Washington are more expensive than San Francisco for office rents, according to Reis.

Office rents in San Francisco have more than doubled from the first quarter of 2009 through the third quarter of this year, to an average of $70 a square foot, CBRE said. In Silicon Valley, rents jumped 76 percent in the same period, to $51 a square foot.

“The rate of growth is still strong,” Yasukochi said. “It certainly has slowed over the last year compared to the past year or two, but it’s strong relative to almost any other market or any other industry.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE