\n<\/p>\n
Ten years ago<\/span>, Pear VC<\/a>, then a tiny new venture firm, operated out of a nondescript office in Palo Alto that was enlivened by bright, computer-themed art. Last week, the outfit \u2014 which closed its largest fund<\/a> to date in May \u2014 quietly inked a deal to sublease 30,000 square feet of \u201cClass A\u201d office space in San Francisco\u2019s Mission Bay neighborhood from the file-storage giant Dropbox.<\/p>\n It\u2019s among a number of fast-growing outfits taking up more space in San Francisco as an earlier generation of companies shrinks its physical footprint.<\/p>\n As the San Francisco Chronicle first reported<\/a> last week, ChatGPT creator OpenAI just subleased two buildings totaling a collective 486,600 square feet from Uber. The ride-share giant, which originally leased a grouping of four buildings down the street from Dropbox and will continue to occupy two of these, told the paper it is \u201cright-sizing.\u201d<\/p>\n A rival to OpenAI \u2014 Anthropic \u2014 also just reportedly closed a sizable subleasing deal<\/a>. Its plan: to take over the entire 250,000-square-foot building in downtown San Francisco that was previously Slack\u2019s headquarters.<\/p>\n Salesforce, which acquired Slack in 2021, is an investor in Anthropic. Meanwhile, Pear VC co-founder Pejman Nozad wrote one of the first small checks to Dropbox when he was still relatively new to the U.S. from Iran and selling Persian rugs to Silicon Valley bigwigs.<\/p>\n Such subleases don\u2019t necessarily begin with hand-shake deals, however. Asked if Nozad zeroed in on Pear\u2019s new space owing to his connection to Dropbox, he scoffs. The office \u2014 which has room for more than 200 desks, features more than 20 conference and call rooms, and has dedicated event space to host talks \u2014 \u201cwas a business deal for them,\u201d says Nozad. \u201cThe founders were not involved. As you know, I sold rugs for 17 years, so I have some skills in negotiation,\u201d he adds with a laugh.<\/p>\n Certainly, it\u2019s a good time to strike a subleasing deal if you\u2019re a well-funded company on the rise. According to Colin Yasukochi, an executive director at the commercial real estate services firm CBRE, subleases in prime areas like Mission Bay and the city\u2019s Financial District currently range from $60 to $80 per square foot. The higher the floor and the more plentiful the amenities, the higher the price. For startups willing to sublease space with less than five years left on the lessee\u2019s contract, the better the terms (as they\u2019ll need to lease again somewhere else in the not-too-distant future). In comparison, office lease rates passed the $75 per square foot mark in September 2019 before the pandemic turned the city upside down.<\/p>\n There\u2019s no shortage of options right now. San Francisco\u2019s commercial buildings are currently 35% vacant, and there are still more tenants flowing out the door than entering them.<\/p>\n Dropbox originally leased the entire 750,000-square-foot space in the building it currently occupies, but it never filled it up entirely and after COVID struck, it began more aggressively whittling down its use. It paid $32 million in late 2021 to terminate<\/a> part of its 15-year lease; before newly subleasing space to Pear VC, it separately subleased roughly 200,000 square feet to two different life sciences companies: Vir Biotechnology and BridgeBio. It\u2019s still less than half full.<\/p>\n This week, Adobe listed half its leased footprint in San Francisco\u2019s Showplace Square neighborhood and is now looking to sublease 156,000 square feet<\/a> across three floors of one of the buildings it used to occupy.<\/p>\n But a tipping point is seemingly in sight. There was \u201cnegative net absorption\u201d of 1.85 million square feet in San Francisco in the third quarter of this year, according to CBRE data; at the same time, market demand reached 5.2 million square feet, which is the highest increase since the first quarter of 2020.<\/p>\n Much of that shift can be traced to companies like OpenAI, suggests Yasukochi, who says that a new spate of outfits is starting to set up shop, enticed by the opportunity to rent sleeker space for the same or better prices than was possible several years ago for less finished locations, and in more central areas of the city. \u201cIt\u2019s a huge opportunity for companies that are trying to bring back their employees,\u201d says Yasukochi. (OpenAI CEO Sam Altman has long said he thinks companies are more effective when employees convene in person<\/a>.)<\/p>\n Indeed, Yasukochi anticipates that if the economy improves in the second half of new year and interest rates come down, tech outfits in particular will be positioned to recover faster \u2014 and pull the city along with them. \u201cMany tech companies were quick to cut excess employees, along with real estate and other costs,\u201d says Yasukochi. He also says that while tech outfits are typically \u201cearly to cut back, they\u2019re also early to grow. I don\u2019t see any other industry that generates the volume of growth that tech can.\u201d<\/p>\n Worth noting: Yasukochi does not think those tech companies will necessarily be growing in San Francisco\u2019s Hayes Valley. Though the small shop-studded neighborhood has led a resurgence of interest in San Francisco this year and eagerly embraced the moniker \u201cCerebral Valley,\u201d owing to its concentration of AI communities, most of those teams, he observes, are \u201cmeeting in restaurants and bars and working out of their apartments.\u201d<\/p>\n The reality, Yasukochi continues, is \u201cthere isn\u2019t a lot of office space there.\u201d<\/p>\n