Big tech firms ex­pand­ing from S.F. to other states

San Francisco Chronicle - Late Edition (Sunday) - - BUSINESS REPORT - By Roland Li

In the face of mount­ing costs and scarce of­fice space in the Bay Area, tech is in­vest­ing bil­lions of dol­lars in new build­ings out­side of Cal­i­for­nia. But, un­like some old-econ­omy ti­tans that have de­camped al­to­gether, San Fran­cisco’s tech giants aren’t leav­ing town. They’re just spread­ing the wealth.

Sales­force con­firmed on Fri­day that it will pay $475 mil­lion over 17 years for a 500,000-square-foot lease at Wolf Point in Chicago. By 2023, when the new Sales­force Tower Chicago opens, it will move 1,400 ex­ist­ing work­ers there and hire 1,000 more.

Yet that ex­pan­sion comes as Sales­force struck an­other deal for an as-yet-un­built tower in San Fran­cisco that will hold 1,500 em­ploy­ees, in an ex­pan­sion of its head­quar­ters.

Sales­force’s deals come as many of San Fran­cisco’s 20th cen­tury cor­po­rate ti­tans are seek­ing cheaper homes.

En­gi­neer­ing ti­tan Bech­tel ditched

its tit­u­lar head­quar­ters in down­town San Fran­cisco for its op­er­at­ing base in north­ern Vir­ginia this year, while build­ing-mate Blue Shield is jump­ing across the bay to Oak­land next year. McKes­son Corp., the coun­try’s big­gest phar­ma­ceu­ti­cal dis­trib­u­tor, said Fri­day it is mov­ing to Texas.

Wall Street West is not what it once was: Wells Fargo and Charles Schwab are stick­ing around, but adding more jobs in places like Den­ver and Dal­las.

In the 1990s, there were con­cerns that San Fran­cisco would be­come a new Venice, a pretty city de­pen­dent on tourism, but with fad­ing eco­nomic might, said Gabriel Met­calf, out­go­ing head of ur­ban plan­ning think tank SPUR. The sub­urbs were cheaper, safer and had bet­ter schools.

Then the tech boom showed up. Though the mod­ern in­dus­try ger­mi­nated in Sil­i­con Val­ley, al­most ev­ery ma­jor tech com­pany is now growing in San Fran­cisco, court­ing em­ploy­ees who pre­fer ur­ban­ity. Sales­force sur­passed Wells Fargo as the city’s largest pri­vate em­ployer this year. Face­book signed two mas­sive of­fice tower deals in the Trans­bay dis­trict. Google is con­tin­u­ing its of­fice leas­ing spree near the Em­bar­cadero.

The roar­ing econ­omy has given the city its largest bud­get ever, which at $11 bil­lion ex­ceeds that of more than a dozen states. It’s also put pres­sure on of­fice, hous­ing and tran­sit in­fra­struc­ture, lead­ing to a back­lash against more growth.

Sales­force is pay­ing $55 per square foot in an­nual rent in Chicago, far less than it does at home. The $500 mil­lion, 16-year lease at Par­cel F, the site of its new San Fran­cisco tower, is equiv­a­lent to $96 per square foot an­nu­ally. Only New York, London and some Asian cities have of­fice rents that high.

Sales­force has plenty of cash to grow in San Fran­cisco and else­where; it has pro­jected rev­enue of $16 bil­lion next year.

“This is all about the Fourth In­dus­trial Revo­lu­tion. This is about the cloud. It’s about ar­ti­fi­cial in­tel­li­gence, ma­chine learn­ing, deep learn­ing,” Sales­force co-CEO Marc Be­nioff said on a re­cent earn­ings call. “We are in a lot of un­charted ter­ri­tory here. And we’re go­ing to con­tinue to see in­cred­i­ble ex­pan­sion.”

The prob­lem for cities like Chicago in draw­ing more tech com­pa­nies is find­ing peo­ple whose skills put them on the map. In Chicago, tech ac­counts for 4.9 per­cent of jobs, ac­cord­ing to real es­tate bro­ker­age Cush­man & Wakefield. Mean­while, tech ac­counts for 27.5 per­cent of jobs in Sil­i­con Val­ley and 12.3 per­cent of jobs in San Fran­cisco, ac­cord­ing to Moody’s and the Bureau of La­bor Statis­tics. The larger pool makes find­ing work­ers eas­ier — though it also means there’s a lot of poach­ing by com­peti­tors.

“With un­em­ploy­ment at 4 per­cent or lower in each of th­ese mar­kets, tech com­pa­nies of all sizes are in a war for tal­ent and must do their ut­most to hold on to and re­cruit em­ploy­ees — and that means the best salaries, the best in­cen­tives, the best space and the best lo­ca­tion,” said Robert Sam­mons, Cush­man & Wakefield North­west re­gional re­search di­rec­tor, in a state­ment in Septem­ber. “That last point has gen­er­ally meant an ur­ban or even sub­ur­ban lo­ca­tion that is mixed-use, walk­a­ble, bike­able and near mass tran­sit.”

Google, Face­book, Uber and Mi­crosoft have all re­cently ex­panded in down­town Chicago, in part be­cause of lower costs, said Bran­don Svec, Chicago market econ­o­mist at CoStar Group.

“A big draw for th­ese firms is not just that they can find tal­ent here, but that they can find it at very rea­son­able prices rel­a­tive to the coasts due to the dif­fer­ence in costs of liv­ing. In ad­di­tion, of­fice space is much cheaper and thus, on a rel­a­tive ba­sis, Chicago is very com­pet­i­tive,” he said.

San Fran­cisco is set to get more ex­pen­sive for ma­jor com­pa­nies in Jan­uary, when a new tax to fund home­less­ness ser­vices will kick in for com­pa­nies mak­ing more than $50 mil­lion in gross re­ceipts. Be­nioff was the big­gest cham­pion of the mea­sure, even though he said it will cost Sales­force around $10 mil­lion a year.

Since the bal­lot mea­sure passed in Novem­ber, no ma­jor tech com­pany has an­nounced it will leave the city.


A ren­der­ing shows the planed Sales­force Tower Chicago, sched­uled to open in 2023.


Sales­force Tower Chicago is to hold 2,400 work­ers. The com­pany is also ex­pand­ing in San Fran­cisco.

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