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.