Posted by: BayAreaComRE | October 15, 2010

Why San Francisco’s Tech Surge is NOT the Dot.com BOOM (and why that’s a good thing)

Flowtown's Ethan Bloch's Infograph on the Social Media Landscape

It has been a long time since we have seen competition for office space, period. We are seeing spaces get taken left and right in the creative sectors. Brokers and executives of tech, social media and web companies get wide-eyed when new spaces come available south of Market Street.

Our recent efforts to find two different spaces for social gaming companies proved to be more difficult than anticipated, albeit they have found great options – just at a premium. Wait too long, and the space you want will be taken. Just recently, we said if a Landlord didn’t win a tenant, it’s because another Landlord did. The tides are turning in this small district in San Francisco.

Whispers of a dot.com-esq boom are getting louder. We aren’t going to say this is anywhere near the dot.com boom of the late 90’s, but that is a good thing! Hoping for the dot.com boom of the 90’s would be like hoping for the housing bubble of the 21st century. We don’t want mortgages blindly approved by lenders again to jump-start housing. We don’t want blind lending by VCs or capricious IPOs.  It has to be done right.

In fact, we think this tech growth in San Francisco is sustainable. Sure that’s what they always say, until the bubble bursts. But let’s look at the dynamics of this industry. IPO’s have been dry for some time now, with a few here and there trying their luck. Venture Capitalists have been careful, to say the least. The biggest activity have been acquisitions from within the tech world. Google buying Slide and expanding their footprint in San Francisco. There are even talks of AOL going after Yahoo. The list goes on and on.

That leaves us with the Founders, youthful risk takers and experienced professionals, all trying their luck to find the next big idea: one that can disrupt an industry and solve a problem.

The dot-com bubble forced the tech industry to mature, just as the financial and housing crises have forced people worldwide to spend and lend wisely.

Granted, some execs are getting overly excited. Evan Williams, former CEO of Twitter, just promised a Billion twitter users – long way to go from the 135 million currently enrolled on the micro managing site. But we like the enthusiasm. BTW, Twitter is currently out for 150,000 more square feet of office space to complement their 60,000 now at 795 Folsom. They have to be doing something right.

The investors who foster these youthful entrepreneurs are generally experienced in the industry, with execs from PayPal, Google, Facebook, Twitter putting their newfound riches back in the tech pot. Or in the case of Dave McClure of 500Startups, Paul Graham of Y Combinator, and many others, they have set out to not just fund through Angel Investing but also be integral in advising these fledgling companies.

Pop your head into any number of tech incubators around the city or Bay Area, just as we have been doing, and you’ll see the excitement around creating the next big idea in web and social media. Angel Investors have become a headlining group, and veterans like Ron Conway and Paul Graham are systematically building companies with crash course seminars, competitions and extended start-up courses. Paul Graham of Y Combinator believes that in this era, funding is the least important part of the start-up process.

We’ll say it again. Funding, which funneled to any company with a .com affixed to the end of their name in the late ’90’s, is now the LEAST important part of a start-up.

Founders who have an idea that can disrupt an industry and have the work ethic that impresses an angle investor, have the opportunity to be trained by the most successful tech executives in the world. What better place than to live and work in San Francisco and do what you love.

These are not just young people looking to strike it rich with one roll of the dice. Founders like Ethan Bloch of Flowtown have been starting companies since he was 13. Ryan Merket, Heath Black and the Appbistro team have been thinking up ideas since college. And the list goes on and on.

So what of the youth of many of the founders out there.Steve Blank’s blog post on the youth factor of Founders nails this point.

“As I’ve gotten older I’ve observed that it’s not just that stamina that changes for entrepreneurs. One of the traps of age is growing to accept the common wisdom of what’s possible and not. Accumulated experience can at times become an obstacle in thinking creatively. Knowing that “it can’t be done” because you can recount each of the failed attempts in the last 20 years to solve the problem can be a boat anchor on insight and imagination. This not only affects individuals, but happens to companies as they age. Too Young To Know It Can’t Be Done

“When you’re young anything seems possible.” Steve concludes. At some point, everyone at Apple was in their early 20’s, same with Facebook. Just saying, Mark probably still gets carded at bars, and he’s supposedly richer than Steve Jobs. We can all say he has stayed remarkably steady at the helm.

This healthy mix of young risk takers, seasoned pros, Founders and Angel Investors, engineers, marketers and CEO’s come together within a community in San Francisco and the Silicon Valley.

The resurgence of life in SoMa is exciting, but it is no stranger to technology companies. It housed the fist tech boom 10 years ago. Now, the tech industry has gotten a more lean with incubators and plug and play centers, virtual offices and support and cloud computing. Founders don’t want to throw their seed money all at an office right away, so its important to not rush into it. When the time comes to recruit more people, you will know and we can help you.

Until then, we are getting to know every incubator, shared space, office suite and Craigslist listing where you can plug in and get to work.

But the most expensive space in SOMA still pales in comparison to SF’s counterparts in Palo Alto and Menlo Park, which have eclipsed $60 per RSF and $90 per RSF respectively. “At the same time, the [San Francisco’s] design talent, cheaper office rents and mix of amenities are drawing an influx of smaller tech firms, such as social-gaming start-up Booyah Inc. and help-desk software start-up Zendesk Inc.”  Tech Buoys San Francisco – Start-Ups Drawn to City’s Design Talent, Amenities and Rents Create a Boomlet
The Wall Street Journal article went on to say,

And with the city’s unemployment rate at 9.7% in August, tech companies have fueled pockets of job growth, with a 50% increase in the number of software jobs and more than a 20% jump in Internet publisher jobs for the 18 months ended in late 2009, according to Ted Egan, chief economist in San Francisco’s Controller’s Office.

The influx is also buoying commercial real estate. Tech companies are seeking 1.3 million square feet of space—either to expand or set up shop here— and make up 30% of the current demand for office space, according to Colliers International. Investors are pouring money into the city’s start-ups, with venture capitalists putting $528 million into San Francisco companies in the second quarter, more than triple the $164 million in the same period a year earlier, according to research firm VentureSource.

When the time is right to branch out on their own, tech Founders can join the other 1.3 million square feet of tech users in demand for office space in SF. Don’t be discouraged however, because there are still cool spaces to find. If you want creative space in SOMA, however, you will have to pay a premium…relatively. We are consistently seeing prices in the mid $30’s per square foot in SOMA, and the concessions are dwindling. Keep in mind, prices per square foot were almost in the triple digits in the last dot com boom.

As part of our coverage on the tech industry, we are touring the various plug and play centers in SF. We visited i/o Ventures, which offers a 4-month start-up program, at 780 Valencia and spoke to the Appbistro team which has a hub on the 2nd floor. “It is unique space because it offers something that is important for start-ups, a community.” We have people like Paul Bragiel (co-founder of Lefora) Ashwin Navin (co-founder of BitTorrent), Aber Whitcomb (co-founder of  Myspace) and Jim Young (co-founder of HOTorNOT.com) there on a daily basis, grabbing lunch and establishing a relationship outside your start-up.”

Appbistro is a marketplace of Facebook tab applications, founded by Ryan Merket, a former Facebook employee and enthusiastic member of the start-up community. There were dozens of others meeting together. It was 6:30 PM on a Tuesday and there was not one seat in this incubator, the space alive with whiteboards, Blue Bottle coffee and Founders.

The city is bustling with startups, and the commercial real estate industry is trying to catch up after being stagnant for some time. It’s refreshing to see it done right with an exciting and innovative marketplace. If you are in Web development and Social Media, San Francisco is where you want to be.

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Responses

  1. […] Why San Francisco’s Tech Surge is NOT the Dot.com BOOM (and why that’s a good thing) « San Francisco Bay Area Commercial Real Estate Blog (Source) […]

  2. […] From the Bay Area blog: It has been a long time since we have seen competition for office space, period. We are seeing spaces get taken left and right in the creative sectors. Brokers and executives of tech, social media and web companies get wide-eyed when new spaces come available south of Market Street. […]

  3. Great article! The plug & play solutions (we call it executive space) are working great for start-ups & entrepreneurs all over the country. It’s good to see a CRE Broker who understands how this solution fits in the market place.

  4. […] Silicon Valley Industrial Global Market Reports Top posts from BayAreaComRE.com last quarter Why San Francisco’s Tech Surge is NOT the Dot.com BOOM (and why that’s a good thing)Education: BOMA Standards, Square Feet Measurements and Class DesignationsTracking the Trends: Is […]


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