Why Tech, and Why San Francisco?

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By: Jack Nelson, Research Analyst – San Francisco

San Francisco remains the most attractive market in the United States for tech companies, and this has driven rent growth to double in the last five years to $66.80 per square foot, and vacancy to fall to just 8.4%.  The climate of this market is detailed in JLL’s Technology Office Outlook which seeks to illustrate the growing and existing influence of Tech companies throughout the US.

An innovative metric, ‘market score’, is utilized throughout the report and allows an impartial comparison of each market.  San Francisco ranks the highest among the 37 markets in this report, with a score of 93.4.  However, for occupiers, the ‘locator matrix’ in the report indicates that San Francisco has the best environment for a start-up to grow, as long as they don’t mind the high cost. The report aims to answer the question any pragmatic individual is asking…Why Tech, and Why San Francisco? The answer…

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Talent…With top schools including Stanford and UC Berkley providing top tier talent to the entire Bay Area, tech companies looking to secure employees do not have to go far.  The City also teems with a contagious, diverse lifestyle that attracts talent from around the world.

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Branding…Success is in branding, and San Francisco (pardon the anthropomorphism) is a master brander.  It is host to large offices for Salesforce.com, Twitter Inc., Uber, and Google.  One would be hard pressed to find more recognizable brands; companies want to be a part of the global phenomenon that is San Francisco’s tech community.

Funding…San Francisco tops the list for VC funding garnering more than 40% of all US VC investment. In the 12 months through Q2 2015, funding totaled $4.9B, including funding to Airbnb who had the largest deal at $1.5 billion.

Picture3Will growing demand and limited space push rents past a point of no return, forcing tech tenants to look to more affordable markets, that offer similar amenities, like Oakland/Eats Bay, Portland, or Denver? Major development projects in the pipeline, should provide a significant increase in supply within the next three years leading to a movement towards equilibrium.  Though demand is expected to remain strong, the increase in supply should lead to stabilizing rents.

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