Up and down the California coast, and particularly in San Francisco, office lease prices have shot up as tech firms gobble up space. Companies that are hunting around the Bay Area can opt to pay some of the highest lease prices in the country, or they can look for alternatives. In a recent blog, we wrote that firms do have choices in high-priced office markets. More affordable options can be had in the suburbs and nearby communities, where vacancy rates remain high and the rents are less than half the cost, even if the zip codes aren’t as fashionable.
Some companies, however, feel they must plant themselves in downtown San Francisco, Palo Alto, Boston, and Manhattan, the epicenters of this country’s technology and financial sectors, where vacancies have shrunk into the single digits and lease prices are spiking. It is not impossible to find an affordable, long-term lease in these markets. However, it’s definitely a challenge.
Think Like a Startup in High-Priced Office Markets
Faced with renting in high-priced office markets, companies do have some affordable options, but they have to think more like a startup.
In San Francisco, for example, as rents have increased by double digits to more than twice the national average, many companies are turning to shared office arrangements. In downtown San Francisco and in other high-rent cities, such as Seattle, co-working and space sharing arrangements have become more popular, even for larger and more established businesses.
Some of these arrangements resemble private clubs, where your company has to be invited to share a space with other entrepreneurs. For example, in San Francisco’s SoMa neighborhood, one such clubhouse for entrepreneurs opened up, where companies cycle in each day to a 8,500-square foot building. Property management firms are sprouting up that rent out shared space by the hour, week, or month. One company in San Francisco, for example, charges a monthly fee, giving out keys with 24-hour access to office space that has communal or private desks, a conference room, and a coffee shop. In this arrangement, the company can buy their office space a la carte. If they want private desks and dedicated filing cabinets, the fee is higher.
There are many different shared arrangements. A blogger for Forbes wrote that some companies in cities with outrageously high rents are even bartering for space, offering tech support or accounting services in exchange for the use of office space in another company’s building. This can be an option for a firm with a good nose for negotiation and the resources to make such a trade.
Space Sharing and Co-Working Arrangements Have Limitations
Although co-working and other space sharing options provide intriguing possibilities for workers to collaborate and to save money on rent, these options typically won’t work for companies that have a lot of employees and need permanent space. Even with smaller companies and start-ups, these shared arrangements are usually set up to be temporary.
One of the problems in San Francisco and other cities with tech-based economies, however, is that the office boom doesn’t show any signs of slowing down. While prices probably won’t escalate at the current rate indefinitely, no analysts that track national office trends, such as Cushman & Wakefield and Reis, predict that office rents will fall in San Francisco or other high-priced markets in California. For one thing, it is a difficult and slow process to build office towers in San Francisco, and new many buildings are completely pre-leased. That’s why many companies should consider looking outside of the high-priced markets.
Oakland and Alameda County Offer a Long-Term Option
Companies have an excellent option just 11 miles away from downtown San Francisco in Oakland. According to Collier’s, downtown Oakland is already on the upswing. An estimated 350,000 square feet of office space was absorbed last year, much of it by companies spilling out of San Francisco. On Broadway, the former Sears building is being turned into a 360,000 square foot retail and office complex, a project that should make the city’s office market much more fashionable. Although average rents rose in Oakland by double digits this past year, they still remain roughly half those in San Francisco.
Of the markets near San Francisco, Alameda County is another strong option. This office market has the highest vacancy rates of any submarket near San Francisco, Collier’s said. Predictably, with such a high vacancy rate, Alameda has one of the most affordable office markets near San Francisco, but it also has strong neighborhoods close to retail centers and other amenities that make it a place worth visiting and exploring.
Although rents are outrageously high around San Francisco, companies do have choices. Some smaller companies may want to explore space sharing arrangements. The most affordable, long-term option for most companies will be to look outside of San Francisco and other high-priced markets. However, even if a company has a good lead on office space, it should not leap into a long-term deal without exploring all the options. As with any commercial real estate deal, firms should not hunt for property on their own, but work with a commercial real estate consultant who understands all of the markets and available properties in a region.
If you are looking for office space, you don’t have to go it alone. You can get a thorough analysis of the market with all the available options from a consultant whose community values align with your own. Contact DCG Real Estate today to learn more.