San Francisco's Tech Boom Has Pushed Up Office Rents 81% in Four Years

The latest tech boom has been inflating commercial rents all across the Bay Area, but nowhere have the impacts been as acute as in San Francisco. The increases are certainly welcome news to the city's commercial landlords, but non-profits, small businesses, and startups are getting pushed out by rents they can't afford.

The Information reports the real estate turnaround began in 2010. Now, just four years later, San Francisco's office rents are approaching dot-com bubble territory.

In 2010, when the average rent for top grade office space fell to $34.02 a square foot, there were 22 blocks—real estate lingo for office spaces of 100,000 square feet or more—on the market. The city scrambled to alter its local tax laws to keep Twitter in town and generally worked to make itself more attractive to tech companies.

Today, with San Francisco displacing Silicon Valley as the location of choice for many tech companies, the average price per square foot for so-called Class A office space in San Francisco is $64.45, according to the real estate company CBRE. That's close to the dot-com bubble peak of $67.20 in the third quarter of 2000.

San Francisco's office vacancy rate has plummeted to 7.8 percent as tech firms have gobbled up available real estate. According to a report from Cassidy Turley, a commercial real estate firm, just six companies are accountable for the bulk of leasing activity. Google, Salesforce, LinkedIn, Twitter, Dropbox, and Uber have all signed leases in the past six months for two million additional square feet of space—offices that could house more than 12,000 new employees.

Non-profits are being especially hit hard by the increases. Around San Francisco's Mid-Market neighborhood—a longtime home to non-profits serving the disadvantaged—landlords are cashing in the area's tax breaks and tech charm.

One non-profit, the In-Home Supportive Services Consortium, recently had their rents raised from $18 to $45 per square foot. According to the San Francisco Chronicle, the only way for the organization to stay in the city was to move into a basement with no windows.

"They are turning our old offices into tech space. I get it - everybody wants to be across the street from the Twitter building," at Market and 10th streets, [Deputy Director Mark Burns] says. "As much as we hate to be underground, I feel fortunate to be here for the next 10 years."

The problem is only expected to get worse, despite a wave of new commercial construction slated to open in late 2015. Most of those units are already pre-leased by tech's biggest companies. And because of that, Cassidy Turley anticipates the vacancy rate will fall to 5.0% by early next year—only causing rents to climb higher.