By Tony Zucker, Executive Vice President, Dunhill Partners West, 6.29.18
Crisis? Bubble? Denial? Unreality? Nuts? …San Francisco.
With Facebook, Salesforce, Amazon, Google, WeWork and others gobbling up office space based on projected revenues, it’s time to take a closer look at the numbers.
Let’s start this off with 29,100. That’s the estimated number of new workers in the city of San Francisco based upon recently leased space, and soon to be completed office buildings. This is based on tech companies budgeting 200 square feet per worker and We work packing them in at 75 per square feet per “member.”
Continuing with housing…$820,000. That’s the median price for a single-‐family home in the nine county Bay Area. In San Francisco -‐ $1.6 million. A San Francisco condominium -‐ $1.17 million. In the past five years, the cost of construction has increased by 50% to $347 per square foot. A San Francisco apartment unit costs $800,000 to build including fees. A handful of new single-‐family homes are constructed annually in San Francisco and most cost over $4 Million.
Now labor…$142,000. That’s a Bay Area tech worker’s average salary. The median salary for a Facebook employee -‐ $240,000, a Google employee -‐ $197,000, a Twitter employee -‐ $162,000 and a Salesforce employee -‐ $155,000. Compare that amount to $52,000. That’s a skilled laborer’s average salary!
Don’t forget transportation…170,000. That’s the number of daily pick-‐ups in San Francisco from Uber and Lyft, which by the way, accounts for 20% of the city traffic. BART and other transit options are packed (if not maxed out) during commute hours with parking lots filled by 8 AM. BART reports there is a total of 48,000 parking spaces and a systemwide reserved parking waitlist of 38,000 customers. In 2014, we spent an average of 56 hours in traffic, in 2016 it increased to 82 hours. In 2018? To be determined.
Should I stay or should I go now? In 2013-‐2014, the Bay Area gained 15,000 residents. In 2016, 24,000 residents left the Bay Area, doubling the previous year’s exodus. When asked, 46% of residents are planning to leave the Bay Area in the “next few years”.
Now, consider this…Facebook recently executed a lease for the entire building at 250 Howard Street (Park Tower) for 763,000 square feet. By the end of 2018, Facebook will have office space for 4,000 workers in this building and likely pay rents averaging in the low $90’s per square foot, minimally $25 more per square foot compared to 7 or 8 years ago. As stated earlier, the median Facebook employee’s salary is $240,000. And now some more math, 763,000 square feet multiplied by the $25 increase equals $19,075,000. That is a big number! But not when you break it down. The $19,075,000 divided by the median salary of $240,000 equals ONLY 79 workers! When Facebook plans to fill the building with 4,000 workers, and with fierce hiring competition, they are willing to pay the high San Francisco rents to attract talent. But can they hire enough workers?
Will the big companies sit on vacant office space as they struggle to hire workers?
FitBit decided not to sit on vacancy and is now looking for a sub-‐tenant for 187,000 square feet. Clearly, FitBit over extended on the leasing front and is scaling back.
WeWork, one of the five largest tenants in San Francisco, has been called “the most over valued company in the world” by a NYU marketing professor with a value of $20 Billion equal to Boston Properties. Boston Properties owns five times more property than WeWork leases!
A Labor crisis in all fields, especially tech and construction (skilled labor).
A Housing shortage continues because of the cost and the delays due to complex building codes, permitting, and procedures.
A Commute crunch continues due to traffic and public transportation being maxed out.
This does not even consider the huge amount of office space leased in the South Bay and how a large percentage of those workers may want to live as close to San Francisco as possible.
The San Francisco office market hangs precariously upon tenants attracting and retaining workers in a market that is expensive and congested. A correction is looming…sooner than later.
Sources: The San Francisco Business Times, San Francisco Chronicle, Bay Area News, City of San Francisco, Polaris Pacific, Jones Lang LaSalle, Cushman & Wakefield, Inrix, Hired, Wall Street Journal, CoStar, Mercury News.
Email Tony, tonyzucker@dpwcre, who represents office tenants exclusively.