Ten years ago, Pear VC, then a small startup venture, operated out of a nondescript office in Palo Alto that was animated by bright computer-themed art. Last week, the group – which closed its larger background To date in May, it quietly signed a deal to sublease 30,000 square feet of “Class A” office space in San Francisco’s Mission Bay neighborhood from file storage giant Dropbox.
It is one of several fast-growing companies taking up more space in San Francisco as an older generation of companies reduces their physical footprint.
Like the San Francisco Chronicle first reported Last week, ChatGPT creator OpenAI just subleased two buildings totaling 486,600 square feet to Uber. The ride-sharing giant, which originally leased a cluster of four buildings across the street from Dropbox and will continue to occupy two of them, told the newspaper that it is “right-sizing.”
An OpenAI rival, Anthropic, also reportedly just closed a ai-firm-leasing-entire-former-slack-hq-18341028.php” target=”_blank” rel=”noopener”>important sublease agreement. His plan: take over the entire 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 Anthropic. Meanwhile, Pear VC co-founder Pejman Nozad wrote one of the first small checks to Dropbox when it was still relatively new to the US from Iran and selling Persian rugs to Silicon Valley bigwigs.
However, these subleases don’t necessarily start with handshake agreements. When asked if Nozad targeted Pear’s new space because of his connection to Dropbox, she scoffs. The office, which has room for more than 200 desks, has more than 20 conference and call rooms, and has dedicated event space to host talks, “was a deal-breaker for them,” Nozad says. “The founders did not participate. “As you know, I sold rugs for 17 years, so I have some negotiation skills,” he adds, laughing.
It’s certainly a good time to reach a sublease agreement if you’re a well-funded, up-and-coming company. According to Colin Yasukochi, CEO of commercial real estate services firm CBRE, subleases in prime areas such as Mission Bay and the city’s financial district currently range between $60 and $80 per square foot. The higher the floor and the more abundant the amenities, the higher the price. For startups looking to sublease a space with less than five years left on the tenant’s contract, the better the terms will be (as they will need to lease again elsewhere in the not-too-distant future). By comparison, office leasing rates topped $75 per square foot in September 2019, before the pandemic upended the city.
There is no shortage of options right now. San Francisco’s commercial buildings are currently 35% empty and there are still more tenants leaving their doors than entering them.
Dropbox originally leased the entire 750,000-square-foot space in the building it currently occupies, but never fully filled it, and after COVID hit, it began reducing its use more aggressively. Paid $32 million at the end of 2021 to Finish part of its 15-year lease; Before subleasing space to Pear VC, he separately subleased approximately 200,000 square feet to two different life sciences companies: Vir Biotechnology and BridgeBio. It is still at less than half capacity.
This week, Adobe listed half of its leased space in San Francisco’s Showplace Square neighborhood and is now looking to sublease 156,000 square feet on three floors of one of the buildings it occupied.
But it seems that a turning point is in sight. There was “negative net absorption” of 1.85 million square feet in San Francisco in the third quarter of this year, according to CBRE data; At the same time, market demand reached 5.2 million square feet, which is the largest increase since the first quarter of 2020.
Much of that change can be attributed to companies like OpenAI, suggests Yasukochi, who says a new rush of companies is starting to set up shop, attracted by the opportunity to rent fancier space for the same or better prices than was possible. Many years ago. for less finished locations, and in more central areas of the city. “It’s a great opportunity for companies trying to get their employees back,” Yasukochi says. (OpenAI CEO Sam Altman has long said that he believes companies are more effective when employees meet in person.)
In fact, Yasukochi anticipates that if the economy improves in the second half of next year and interest rates drop, tech companies in particular will be positioned to recover faster and take the city with them. “Many technology companies were quick to cut excess employees, as well as real estate and other costs,” Yasukochi says. He also says that while tech companies are often “early to cut expenses, they are also early to grow.” “I don’t see any other industry generating the volume of growth that technology can generate.”
Worth noting: Yasukochi doesn’t think those tech companies will necessarily grow in San Francisco’s Hayes Valley. Although the small, store-filled neighborhood has sparked a resurgence of interest in San Francisco this year and has enthusiastically adopted the nickname “Brain Valley,” due to its concentration of ai communities, most of those teams, he notes, are “ They meet in restaurants and bars and working in their apartments.”
The reality, Yasukochi continues, is that “there is not much office space there.”
Pictured above: 1800 Owens Street in San Francisco, which is the site of Dropbox’s headquarters and now also Pear VC’s San Francisco office.
