Commercial Real Estate in Silicon Valley: The City or the Peninsula?

November 2014
David Bergeron

At T3 Advisors, we work with companies of all sizes to locate and create killer workplaces. As such, it’s no surprise that many of these companies – especially technology startups – seek space in San Francisco. The attraction is pretty obvious: the great culture, transportation options, and access to a young and vibrant workforce. What’s not to love?

But as much as these companies are dying to move into the city, I have had just as many conversations with companies that are in the city that are having trouble with hiring and are actually trying to move back down to the Peninsula. Is this an early indicator of things to come?

The City or the BurbsThe reality is that there are a bunch of great accelerator programs out there that are spinning out startups. And these startups today don’t necessarily look like the companies they will become in six months or two years. For many of these young companies, the default is to go to San Francisco for all of the reasons that I mentioned above. BUT if you are trying to build specific businesses around the “Internet of Things” trend or if you are a traditional hardware company, for example, much of the human capital base that you may be looking for is NOT in the city.

There is a large gap between those who are just coming out of school who are already installed in the city and those seasoned professionals who need to commute back and forth between the suburban locations and the city. For this latter group, the prospect of the commute coupled with the lack of access to the Caltrain is becoming more of an impediment to recruiting for many companies. They are having a tougher and tougher time getting people to commute into the city.

So for many companies, the Peninsula is better suited to meet their hiring objectives. Early stage companies want their employees in the office, driving their culture. For startups, working around the clock is a necessary part of the work environment. Younger people are needed to build these high growth companies because there is so much competition; the determination to be a “first mover and first to market” is necessary to ensure everyone is working as hard as possible to hit the goal. And while the mobile workforce trend may be quite successful with later stage and more mature companies, managing a mobile workforce can be tough for early stage companies. This is another layer of maturity that startups cannot necessarily handle and/or can hold them back as they seek to hit goals fast and furiously.

Is the city working for you? And, once we hit the ceiling with an impending cap on development, where do people start to look next? I asked these questions to a good friend and T3 client, Ann Miura-Ko who is a co-founding partner at FLOODGATE:

“As someone who grew up in the Bay Area and now a parent to three kids, I have a deep appreciation for what San Francisco has to offer as well as the cities along the Peninsula down to the South Bay.  In 2008, as Facebook was gaining a lot of momentum, many startups wanted to be a part of that ecosystem and started in Palo Alto.  I recall encouraging many of our young founders to branch out beyond downtown Palo Alto and to think about heading up to the city.  Now that the bulk of startups appear to be putting down roots in the city, I think that there is a new advantage to building back down on the Peninsula, particularly for consumer facing businesses. There is tremendous talent that has grown and scaled teams and these people are wary of a long commute and unwilling to move due to family commitments.  A fast growing consumer business could potentially have an advantage in the talent wars just by geographically locating themselves in an area that is more commuter friendly.”

It was interesting to hear Ann’s thoughts on this topic; what about yours? We want to get your input, challenges, successes so please feel free to leave a comment.

All of this leads us to the most critical piece of the discussion – the need to think creatively about your business and what your objectives are. I always urge clients to think about their businesses – both now and in the future – so that they can make strategic decisions. [tweetable alt=””]Don’t be a lemming, going to the city just because everyone else is.[/tweetable] If you’re a startup, think about how you can create a longer runway with your money. Stretch it out so that you can ensure survival until you hit major milestones. Prioritize what’s important today and then longer term – build a strategy around that and be authentic.

About T3 Advisors

T3 knows that space is the lifeblood of a business and a major platform for growth. Working as an extension of the team, T3 develops and implements a wide variety of corporate real estate solutions for organizations ranging from startups to multinational corporations. By only representing tenants—not landlords—T3 also offers a transparent, conflict-free look into real estate strategy.

The company’s real estate services include tailored brokerage, location advisory, portfolio planning, consultative insights, project management, and ongoing workplace support. Placed at the center of innovation ecosystems with offices in San Francisco, Palo Alto, NYC, and Boston, T3 has advised thousands of companies globally, including LinkedIn, HubSpot, ASICS, AutoDesk, WorkDay, and Battery Ventures.