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