If San Francisco’s Real Estate Market Slows Down, How Will Tech Respond?
What’s the future of the Bay Area Real Estate market?
According to a recent report by Business Insider, SF’s housing market could be headed into a slump. The reason? It’s the oft-debated tech bubble, of course. The article shows that office net absorption rate, which measures the supply of office spaces relative to the number of new leases, corresponds with the number of tech IPOs.
Put simply, more IPOs means more money exchanging hands—and as a result, more companies moving into and out of offices. As it happens, the number of tech IPOs in 2015 has dropped steeply compared to the previous few years.
Another trend has emerged alongside the real estate slowdown: sub-leasing has increased to an impressive 1.5% of total available space. This indicates that large companies are looking to supplement their leases by sharing unneeded space. For the city’s tech giants, money may be tighter than it appears. With large companies like Salesforce and Zynga subleasing portions of their space, perhaps it’s true that tech companies are starting to think twice about how large an office they really need.
The sharing economy proves its relevance here once again. For startups, one benefit to sharing space is that it pushes some of the responsibility onto the coworking provider; there’s less need to worry about re-negotiating your lease and about who you’re allowed to sublease to. The flexibility of coworking allows companies to take as much or as little space as they need, oftentimes by the month. Real estate market is looking grim? No problem—scale back your number of conference rooms and you’re good to go.
The responsibility of finding a new tenant is now on the coworking space provider, not on the startup.
On a deeper, cultural level, the fact that large companies are open to subleasing may indicate that they are embracing the sharing economy in their own way. It might be impractical to rent space for hundreds of employees at a coworking office, but they can still embrace the attitude that office space is a transient thing, not a permanent and physical fixture.
At different times in a company’s life, they might need more space, or they might need less; it’s more efficient to pay for only what you need rather than to take on risk by essentially getting involved with the real estate market while trying to grow your tech company.
After all, time spent fussing over leases is time not spent building a better product.
Large companies are sure to survive a real estate hiccup, but the notion that office space need not be absolute is crucial to the sharing economy. Like our cars and our apartments, office spaces are most efficient when they’re kept in constant use rather than being hoarded.
Coworking space providers should be optimistic that these values are spreading to the realm of office spaces, even if they’re the ones who have to stress out over the real estate market. One thing that isn’t slowing down is San Francisco’s appreciation for efficient sharing.