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Pinterest, Palantir & harsh reality of SF real estate

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To say that Silicon Valley real estate market is hot would be an understatement. And no, Facebook(s fb) millionaires buying mega-mansions has nothing to do with it. Instead it is start-ups who are helping push the rents to stratospheric heights in parts of Silicon Valley. It is hard to go to a San Francisco party and not meet a founder grumbling about being unable to find real-estate to house her growing number of troops.

Times are particularly hard for smaller companies — ones that have not raised mega-rounds of fundings. Things are going to get even harder for many of them. And they would have guys like Pinterest and Palantir to thank for the real estate inflation.

Even though Facebook has moved out of Palo Alto, founder friends tell me that things have not changed much. Palantir, the shadowy and fast growing company, has been gobbling up real estate space. It is rumored to have taken hold of the vast building that was previously occupied by Borders. The real-estate market in Palo Alto is so tight that even a liberally funded company like Pinterest is having to look elsewhere.

If you look at the infographic below, you’ll see office space is to be had in San Francisco for about $3.55 per square foot per month versus $5.78 per square foot per month in downtown Palo Alto or $4.81 per square foot per month in the Palo Alto-Stanford Park area. Menlo Park rents are running at $5.21 per square foot per month.

No surprise that Pinterest is now looking to move to San Francisco. Friends in the real estate market say that it has been toying with the idea of taking over the spot previously occupied by Digg. The rising office rents are only part of the story for startups. The tech boom is boosting demand for housing for tech workers and that is causing civic discord.

Earlier this month, The New York Times in an article noted:

Apartment rents have soared to record highs as affordable housing advocates warn that a new wave of gentrification will price middle-class residents out of the city. At risk, many say, are the very qualities that have drawn generations of outsiders here, like the city’s diversity and creativity. Families, black residents, artists and others will increasingly be forced across the bridge to Oakland, they warn.

“A combination of being a bedroom for Silicon Valley and companies like Twitter establishing headquarters in the city has driven up rents extremely in the past year or so,” said Ted Gullicksen, director of the San Francisco Tenants Union.

RealFacts, a company that compiles rent data in many cities, said the average rent at 50 large apartment buildings it tracks here was now $2,663 — a record.

So if you are are a founder and wondering what to do – you might want to check out this infographic created by Justin Bedecarre of Cushman & Wakefield, a real estate company.

14 Responses to “Pinterest, Palantir & harsh reality of SF real estate”

  1. The lower price per square foot in the city as well as Oakland/Emeryville will keep pulling startups to the urban centers, but more importantly it is the younger single workforce that makes the city/urban centers a much more amiable place to be for Startups. As firms mature it will become increasingly hard to sell their older married workforce raising children on the benefits of city living. Most of these young families will be drawn to the suburbs of Marin, Lamorinda, and Silicon Valley (Burlingame-San Jose) to raise their children. Which will only add to the skyrocketing prices in real estate and leases in those communities.

  2. Craig Shell

    Go to Sunnyvale! I just rented a building near “Plug and Play” and AMD for $1.24 SQF. About half the buildings around here are vacant. The downside though is the lack of culture you will find in the S.F..

  3. Steve K

    Just where is “Silicon Valley” anyway. Like a desirable development in a suburb, it’s borders seem to keep expanding as folks jump on the bandwagon. Silicon Valley started with Fairchild and aided by Lockheed and IBM. By the time the Fairchildren spread though Santa Clara and Sunnyvale giving rise to the term Silicon Valley, HP was growing south from Stanford pushing into Mountain View and Cupertino, so the region kind of got expanded to encompass all of that.

    And now Belmont and even San Francisco is part of Silicon Valley? I’m sure the folks in The City love that (disclosure, I was born in SF) almost as much as they love being called a bedroom to Silicon Valley. The City has always been about finance, with some subsets of the artistic community and trying to develop things like biotech (and now some software folks). While San Jose though Mountain View was about making things, like silicon or gadgets derived from it.

    Looking at the graphics, the solution is simple. There are tons of buildings around San Jose that Cisco and others put up in boom times that have never been occupied. And housing has always been cheaper than the peninsula. Plus, the rest of Silicon Valley, including the foundations, are there. No more cherry orchards in the boonies, just the folks who built the whole Silicon Valley legacy.

  4. SFModerate

    Ugh, Ted Gullicksen? That poverty pimp is the reason why the middle class has been pushed out of San Francisco already. That trend has been going on long before the current boom in rents.

  5. Jmassanari

    In my 20+ years living in Oakland – and working for start ups over the last 15 – employee’s do not want to work in high crime areas such as Oakland. If Oakland would get their act together this could be a real opportunity for everyone.

  6. I donno why people are not looking at Berkeley ; Its good a decent amenities, High score of walkability , close to SF & access a lot of local talent