Rethinking Your Real Estate Strategy as Vacancy Rates Hit All-Time Lows

San Francisco can be seen as an indicator market for real estate. It was one of the first cities to experience the tech boom and to see those companies heavily invest in real estate. As vacancy rates hit all-time lows in major cities, San Francisco may offer a glimpse of things to come, predicting the need for technology companies of all sizes to rethink their real estate strategies.

Maximizing their limited office space is critical to meeting the evolving needs of their talent and business. Over the last decade, vacancy rates have declined to less than 3 percent, compared to 11.6 percent vacancy in 2010. Tight market vacancy empowers landlords to achieve higher economic terms and push for landlord-friendly leasing agreement terms. For occupiers, real estate usually ranks as one of their top three expenses, following employees and sometimes technology. This poses strategic and financial challenges to executives tasked with balancing expenses, while staying in the city’s central business district to have access to the best talent. 

As a result of these conditions, tech companies with a large presence in San Francisco are going to great lengths to secure spaces that accommodate growth and support their long-term business strategy. For instance, Salesforce and Pinterest have each pre-leased hundreds of thousands of square feet in coveted San Francisco office space that has yet to be entitled. 

As the tech economy has grown, the competition for highly skilled talent has intensified. Consequently, a company’s office space and location within the city is a recruiting and retention tool. Understanding the lifestyle, culture and amenity requirements of prospective talent is key to making a smart real estate decision. 

It is critical for rapidly growing tech companies to have office space that accommodates and supports their employees’ work styles and culture – both of which are becoming increasingly more collaborative and agile. While acquiring additional square footage or considering a move to the suburbs is a reasonable approach, a thoughtful redesign of the existing space is often most effective. Doing so also eliminates the cost of moving, the risk of attrition and challenges to hire that companies often experience when they leave the city. When making significant real estate decisions, a few questions to ask yourself include: “What are our employees’ needs?”, “Who are we hiring and where are they located?” and “If successful, how will this company grow?”.  

Though it may seem daunting initially, there are several ways to navigate a competitive real estate market and secure the space you need. First, it’s necessary to place increased focus on your real estate strategy, examining it from a new perspective to assess how you can best optimize your workspaces. 

As many start-up and mid-size tech companies mature, they’re faced with staying cost efficient while also providing a variety of workspaces to suit different job functions and work styles. The rise of agile, activity-based working makes this possible, allowing companies to balance cost, space types and amenities. 

There continues to be a growing emphasis on the importance of company culture. A strong company culture is yet another tool for recruitment and retention. Investing in your talent provides multiple advantages: employees are more productive, it establishes your company as a desirable place to work and enhances the ability to recruit. Culture is influenced as much by the energy in an office as by the amenities made available. Typically, keeping your office at 80-85 percent capacity creates enough buzz to reinforce your culture while also allowing room for strategic growth.

Implementing an agile, activity-based workplace solution can create a cultural shift and impact how employees work. When you make data-driven decisions based squarely on facts and communicate that data to your employees, they’re typically more willing to embrace the design changes. Utilization studies through badge data and seat sensors help quantify space utilization, ensuring the redesign of your space is reflective of your workforce’s actual needs, not its perceived needs. This data illuminates traffic patterns throughout the space, highlights favorite collaboration areas, identifies dead space and showcases how often employees are actually at their desks. This information will assist you in making smart decisions about your space layout and design.

Data has led to the concept of neighborhooding as a popular agile solution, essentially a thoughtful enhancement to traditional hot desking and unassigned desking. Utilization study data has shown that within some teams, such as sales teams, many employees spend 40-60 percent of their workday away from their desks. To increase office space utilization and realize a return on your real estate investment, neighborhooding eliminates individually assigned employee desks in favor of designated spaces (or “neighborhoods”) for a specific team. A neighborhood includes several space types: desks, conference rooms of various sizes, collaboration and lounge areas and quiet rooms. This flexible approach allows companies to do more with the space they have, increasing utilization and thoughtfully spending while also allowing employees to retain a connection with their team. This approach often enhances a company’s culture as well. To implement correctly, companies should consider: ratio of individual desks to number of employees for a team, technology requirements of various spaces, such as power, video conferencing, lockable personal storage, etc.

The availability of a variety of bookable conference rooms and collaboration space is especially important when discussing culture and the transition to an open office environment.  Spaces that can be utilized for multiple purposes provide a further return on your investment. Conference rooms are still essential, allowing employees time to focus or host external meetings and a space to discuss confidential or sensitive topics. In a recent utilization study, high-backed booths in the café were most utilized by teams of two or three working together for approximately an hour, these booths were then used again during breakfast and lunch. Staying mindful of what your employees need and understanding that their requirements vary depending on the task at hand, is key to creating a supportive workspace that reinforces your culture while also enhancing productivity. 

Protecting your leasing rights is essential, especially in a market that is favorable to landlords. Many tech companies in the Bay Area experience periods of rapid growth and the need to right-size. For these companies, achieving competitive, flexible lease terms is one way to avoid tying up much-needed capital. Finding a conflict-free real estate provider ensures your needs come first – not the landlord’s.  

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