Posted by: BayAreaComRE | July 15, 2010

San Francisco Breeds Start-Ups in Social Media and Tech…Single Handedly Driving the Economy

San Francisco and the Greater Bay Area is bustling with start-ups in social media, and this surge of innovation and growth has profoundly affected the market and driving up prices for creative space. Technology companies encompassing social media, Web 2.0, eCommerce, Internet development and Internet analytics, among myriad other technology based companies, boast 30 percent of the current tenant demand.

We recently attended Social Media Marketing (#SMMSF on twitter) at the Hotel Nikko in San Francisco, and saw first hand the excitement brewing among the tech community. It is just that, a community. We met industry veterans rolling their dice with another start-up venture (sometimes their 5th, 6th, 7th or even double-digit start-up), and new comers supremely confident and passionate in their idea, and earning their stripes among the experienced risk takers. The risk is high in this industry and these entrepreneurs are as happy to add a failed start-up to their resume as they are to laud one that succeeded. These are forward minded, passionate and driven people in the economy, enlightened by smart and ground breaking ideas, hoping to be the next Mark Zuckerberg, Biz Stone (or the rest of the twitter gang) or Craig Newmark.

And then you have the ground troops. Marissa Louie, CEO of HeroEx, a start-up that promises delivery of goods in 1 hour, has strong connections to the tech community and thrives on connections across industries and social spheres. Chase McMichael is having another go around with a start-up based in Palo Alto called InfiniGraph. Danny Maco started HotShot Media in San Francisco. Darian Shirazi founded Fwix, the USC guys at 280 North have a big thing going, Jeff Tseng and Albert Lai have stuck by Kontagent relatively under the radar and just raised immense funding – all of these are San Francisco start-ups gaining traction. Check out Russell Glass at Bizo, Blurb founded by Eileen Gittens, Unity 3-D spearheaded by David Helgason and gang. Some are novices, others fledgling and some are pros. Some of these start-ups have made it while some are just taking off. All these entrepreneurs have something in common. They immerse themselves in the Bay Area tech community to build their brands and grow their company.

Dan Martell of Flowtown and Lawrence Coburn of DoubleDutch (one is a SF migrant from Canada and the other a frequenter of the mission street bars) have made strong names for themselves in San Francisco, speaking at engagements, passionate about their products and staples of the social media community here in SF.

In addition to the entrepreneurs at the conference, former Financial Times reporter turned Silicon Valley Watcher, Tom Foremski, coupled with a current FT reporter David Gelles, sat on a panel discussing the current pulse of social media in the Bay Area, and their panel resonated as bloggers for a relatively social media averse industry. We are commercial real estate brokers disrupting the CRE market with social media and expertise via our blog, twitter, LinkedIn, Facebook and Scribd.

The tech industry is also adding jobs in the Silicon Valley as well as San Francisco, and we can only speculate on what the growth will be like when the IPO and VC markets rebound. “In a sign of how Silicon Valley’s tech job market has rebounded more strongly than elsewhere, tech job postings for the region on technology job site Dice.com grew to 4,467 openings as of early July, up 70% from 2,630 a year earlier, according to the website. Tech job postings nationally increased at a lesser rate—36%—to 66,672 from 48,993 over the same period, says Dice.” – WSJ Region Leads Rebound in Technology Jobs.

This excitement for the tech industry comes on the heels of little venture capital and even less initial public offerings (IPOs). The second quarter of 2010 was the worst in seven (7) years.

Tom Foremski interviewed Robert Ackerman, a leading Silicon Valley venture capitalist and founder of Allegis Capital. Mr. Ackerman told SVW, “These days, tech startups have to rely on being acquired by a larger company once they reach a certain size because there isn’t an IPO market to help them recapitalize and grow to the next stage. The largest expansion in jobs for a young company comes in the period after an IPO. If a company is acquired it doesn’t lead to the same job growth.” The Lack Of Tech IPOs Is Holding Back Job Expansion Says Leading VC.

The market may experience a glass ceiling if the IPO market doesn’t awake from hibernation. However, the market is finding ways to facilitate the growth of start-ups by minimizing the costs of office space in the very early stages. “If you are going to try to do a tech startup, you need to find people with money who are used to financing companies like yours,” says J.T. Buffmire, international business relationship manager at Plug and Play. “So you come [to Plug & Play] to do that.” Plug and Play goes international – Silicon Valley / San Jose Business Journal.

As start-ups gain traction and the once hypothetical idea comes to fruition, office space allows engineers, developers, marketers, customer service professionals, finance execs and the founders to work under the same roof allowing the start-up to mature and grow as a company. Start-ups approach the office leasing process differently than most. They usually don’t use the space to pitch clients or have board meetings, and they don’t necessarily want the traditional Class A space. Coupled with the technology industry (and advertising, PR, marketing, etc) at large still seeking creative, brick and timber, exposed ceilings and south of market locations, there is strong competition for the creative spaces in San Francisco and the South Financial/SOMA submarkets. Rents have been pushed up as vacancy in these spaces keeps dropping.

Most people presume leverage has ubiquitously shifted to tenants in today’s market. Unemployment is 9+% nationally, and by some estimates will remain at these levels through 2011. Approximately $350 million in commercial loans will mature annually for the next 3-5 years. The commercial real estate business lags the bottom of the stock market and overall economy by seven quarters historically. There seems to be a lot more ammunition for tenants to continue suppressing rents and demanding concessions.

However, this isn’t the case everywhere. There are a lot of mixed messages for companies. Frankly, there is a lot of confusion in the brokerage community as well. See the full article on agent genius that shows the battle of leverage between landlords and tenants. Right or wrong – tenants may not have as much leverage as they think.

Technology tenants and start-ups have to consider these factors and think about creative ways to jump start a business and procure office space. Companies can be more creative or better apprised of what to expect, and willing to do something different. Maybe then the once highly demanded feature of a building will become less desirable and more affordable, or maybe the next group will swoop right in and pay the higher rents. All the while, you save $100,000 annually on a 10,000 square foot space and get to invest in more human capital. Now you have played a part in growing the economy while helping your company reach your bottom-line and keep your brand intact.

The driving factor for every tech tenant is different, and it is crucial to create a unique strategy for each company. As these dynamic companies surface, whether it be a social networking company or a eCommerce site for discount high-end baby clothes (yes, that’s a client), there are specific needs and unique goals to take into consideration. The Bay Area has experienced an explosion of start-ups and the burgeoning social media industry can’t be ignored. It is the leading market. We are excited to see what comes.

Advertisements

Responses

  1. Thanks for the mention in kind words. Curious, no link luv for Flowtown? 🙂

    DM

    • Dan,

      Thanks for your comment. We linked to flowtown now, and even to your bio page :). Ask and you shall receive! Good meeting you at #smmsf!

  2. Wow, 30% !?! That is impressive! SF will forge the way forward for many tech cities and it will be interesting to watch all the way from here in Austin!

    • Lani, thanks for your comment. Even at the conference, there were social media execs from LA, Dallas, New York and many others, so the seeds are being planted. The Silicon Valley and San Francisco have been the epicenter for technology innovation, and many cities will be/are following suit. See you at AG!

  3. […] news given all our coverage about tech being a major driver for the commercial real estate market (here, here and here). We’ve included an excerpt and the full report […]


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: