6 things CEO’s need to know about Bay Area office space

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6 things CEO’s need to know about Bay Area office space

Finding office space gives CEOs far more headaches than it should. Real estate markets in Silicon Valley and other tech hubs are, in a word, crazy. Palo Alto, for example, now has vacancy rates under 3% and market prices north of $7.50 per square foot per month. We spoke with Matt Winters, Senior Vice President of Cornish and Carey, to find out what every CEO needs to know about navigating the Bay Area real estate market.

1. You may not need as much space as you think
One of the biggest trends in workplace design has been the shift to more collaborative environments. During the first internet boom, startups eschewed cubicle farms in favor of open floor plans (see our post Is Your Floorplan a Relic of the 80s?). Today’s forward thinking companies are replacing open floor plans with more project-oriented work spaces which promote collaboration while saving square footage.

“The trends are definitely going more collaborative and density levels are increasing. We used to use a metric of about 225 square feet per person when planning a space. Now that density is about 150 square feet per person. We’re seeing a lot more communal meeting rooms or huddle areas,” Winters says.

IDEO was one of the first companies to adopt a project-based workspace. Rather than sitting in assigned desks, employees co-locate with their project teams. IDEO’s office is full of collaborative work spaces and has very few traditional desks or offices. Pixar, Google, and several startups have followed suit.

2. Going green is good for everyone
Workers are looking to make their commutes as eco-friendly and productive as possible. Unless you are Google, Facebook, Apple, LinkedIn, or Genentech, you probably aren’t running a fleet of biofueled shuttles and may want to get office space close to Caltrain.

According to Winters, “There’s a big focus on alternate transportation and so cities along the Caltrain corridor are becoming more popular.”

Neighborhoods in Sunnyvale, Redwood City, and San Mateo offer easy access to Caltrain and represent cost effective and convenient alternatives to Palo Alto, Mountain View, and San Francisco. Market prices in San Mateo, for example, are currently $3.58 per square foot per month which is roughly half of the going rates in Palo Alto and Mountain View. You can use some of your newfound rent savings on additional employee perks such as free food, subsidized transportation, and bike-to-work incentives.

3. Think outside Silicon Valley

“In the 2000s a lot of people felt like the seasoned engineers were living in the South Bay with families. With the emergence of Twitter and Facebook — whose employees were pretty young — a lot of talent emerged in San Francisco,” Winters explains.

Many companies are opening office space in San Francisco to cater to younger workers who prefer more urban lifestyles.

“Today, a lot of companies are moving away from the suburban community. An example is the VC community, which was predominantly located on Sand Hill Road. Now VCs are moving closer to entrepreneurs in the city, in some cases splitting operations between multiple offices.”

Setting up shop in San Francisco looks more and more attractive. Silicon Valley tech giants such as Google, Facebook, LinkedIn, and Palantir have swallowed up huge amounts of real estate, thus driving up prices in Silicon Valley. Meanwhile San Francisco continues to add more commercial office space in the form of new buildings, such as the 1,070 ft. tall Salesforce Tower, and converted warehouses in emerging neighborhoods like the Dogpatch, giving San Francisco one of the highest vacancy rates (7.4%) in the Bay Area.

4. Consider sublets and short term leases

One perk of the technology industry’s massive growth is that companies are subletting office spaces more frequently. As companies grow they need to lease bigger offices and move out of their existing spaces. But in many cases they are locked into long-term leases which forces them to sublet space.

“My advice to most companies is to first look at sublet opportunities before full leases. Predicting five year growth is really difficult, especially at a startup level. So if you can find something that has two or three years left on the lease, you can leave your future options open,” Winters says.

5. Sometimes two offices is better than one

Later stage growth companies face another big challenge. They are too big to occupy a single startup space but not big enough to occupy an entire building or campus. Furthermore, these growth companies need to draw talent from all over the Bay Area. In this situation it may make sense to open two offices or even work remotely (see our interview with the author of REMOTE).

“A lot of companies now split operations between the Peninsula and San Francisco,” observes Winters.

Box, the cloud file sharing company, has its headquarters in Los Altos but also has a large office in San Francisco’s SOMA district so it can attract talent from all over the Bay Area.

Critics worry that having two offices may negatively affect company culture. However, the proliferation of collaborative apps, video conferencing tools, and work-from-wherever policies makes it easier than ever to preserve culture across multiple offices.

6. Ask for tenant improvement (TI) funds

Real estate management companies love commercial tenants and look for ways to make their properties attractive to high growth segments like tech startups. In many cases that means converting lofts, warehouses, and other facilities into trendy new office spaces. Many building owners will pay to build out the space just to make it suitable for you and future startup tenants. They’ll also provide hefty tenant improvement funds if they think it will make the space more marketable in the long run. Don’t be shy about asking for buildout and TI funds.

Any other tips on navigating Bay Area real estate? Add your comments below.

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6 things CEO’s need to know about Bay Area office space


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