The South of Market area is returning to its high-tech status a decade after the dot-com crash, with large technology companies leading the real estate charge.
The big draw to the area for companies such as Google, Twitter and Dolby is the buildings themselves, according to real estate agents. Former warehouses were swept up in the late 1990s by Internet companies and startups, but the land grabs stalled when the technology sector took a hit in the early 2000s.
Now tech companies are looking to fill building spaces for their booming businesses. Google, for instance, is about to take over a 263,000-square-foot space from biotech firm Medivation at 345 Spear St., an expansion from Google’s previous space of 200,000 square feet. The larger building will allow for the accommodation of more than 1,600 employees.
In late September, Mayor Gavin Newsom announced that social-gaming company Zynga will be leasing a 270,000-square-foot office building in SoMa.
These big deals have boosted San Francisco’s lagging commercial real estate market, which just logged its first quarter of positive absorption in two years.
“SoMa is coming back primarily because technology companies are growing again,” said Mike McCarthy, senior vice president for Colliers SoMa team. “We have seen organic growth with SoMa companies growing over the last year as well as migration into SoMa from San Mateo, Palo Alto and even the South Bay.”
The main draw of SoMa is the buildings themselves, as they maintain an open-warehouse feel that resonates with modern technology companies, according to McCarthy.
Expansion to this area also is due in large part to the changing demographics of social networking and mobile technology companies. As businesses look to bring in younger generations for a fresh perspective, they must evaluate how to accommodate new hires.
“A growing company will take time to look inward and ask where their key hires would prefer to work, and anecdotally, that answer seems to be SoMa,” McCarthy said.
More than 84 tech tenants are looking to lease more than 1.7 million square feet that’s available in the area, though there is only 904,569 square feet of vacancies, said Elaine Richards, a researcher for CB Richard Ellis.
Tenant demand in SoMa has nearly doubled from a total of 878,252 square feet in 2009 to 1,147,558 square feet so far in 2010, according to Tove Nilson, director of market research for Colliers San Francisco.
As demand continues to increase, McCarthy is predicting that in the coming months SoMa will see a higher percentage of rent growth than any other area of The City, including downtown office buildings in the Financial District.