By Cory Weinberg: Reporter for San Francisco Business Times
The San Francisco office market may get its first big bite of Apple.
Apple Inc. (NASDAQ: AAPL) reached an agreement to rent about 76,000 square feet of office space in the South of Market neighborhood’s 235 Second St., several real estate sources in San Francisco and Silicon Valley said.
The potential sublease is a modest amount of space for a company with the world’s largest market capitalization ($705 billion) that is constructing a 2.8 million-square-foot “Spaceship” campus in Cupertino.
But this would signify Apple’s first push into San Francisco – piling onto the herd of Silicon Valley companies that have wanted a taste of the city.
Apple declined to comment, so it’s tough to tell what this kind of deal may represent. One big question mark: Which division of Apple employees could call the SoMa space home?
Beats Music, which Apple acquired last year, started leasing a few years ago about 26,000 square feet in San Francisco’s Dogpatch neighborhood through 2017. Beats also leases about 10,000 square feet in Palo Alto, according to real estate sources.
The SoMa building – on Second Street between Howard and Folsom Streets – has been marketing a two-floor sublease through 2022 from tenant CBS Interactive. The space, which has been marketed for seven months, could hold between 400 and 500 employees, based on industry standards for employee-per-square-foot.
CBS Interactive, which declined to comment, still leases the vast majority of the 280,000 square-foot, six-story building, which was built by Birmingham Development with a hand-laid brick facade during the dot-com boom.
The vacant second and third floors have “exposed ceilings,” a mix of offices and an open area on floor plates that span about 38,000 square feet, according to the building’s marketing material. The brochure didn’t list what a potential tenant would pay, but the area has some of the highest monthly asking rents in the city at about $66 a square foot.
Patty Henderson, real estate manager for the landlord, declined to comment. John Lewerenz, a broker for the real estate firm Cushman & Wakefield who has been marketing the space, wouldn’t confirm or deny the deal with Apple.
“It’s a little too fresh,” he said.
Apple and Facebook have been notable holdouts as Silicon Valley giants like Google and Linkedin gradually expanded their footprints in San Francisco. Linkedin signed a 450,000 square-foot lease last year at 222 Second St
Since 2010, Silicon Valley companies have gobbled up about 2.5 million square feet in San Francisco, according to CBRE. Those companies typically add branches in the city instead of migrating entire campuses, due to urban space constraints.
“It’s where the talent lives and wants to be,” said Colin Yasukochi, director of research at the real estate firm CBRE.
Fourteen percent of Apple’s Bay Area employees live in San Francisco, topped only by the 25 percent who live in San Jose, according to a 2013 company report. The company just leased its first big chunk of space in San Jose – 300,000 square feet – the Silicon Valley Business Journal reported earlier this month.
Rob Enderle, principal analyst with the Enderle Group, said Apple has been fighting for talent with Tesla Motors as Apple reportedly readies to build electric cars.
A San Francisco outpost could be an ideal spot for groups working on side projects that don’t need to be in the company’s Cupertino headquarters, Enderle said. Or the company could just want a location for San Francisco-based employees to work part time, he added.
Like many of the region’s big technology companies, Apple runs buses from the city to its Silicon Valley offices.
“We’ll see more of this. Traffic in the Valley is horrid. A lot of companies are going to fight traffic problems by placing satellite offices where people live so they are more productive and spend less time in traffic,” Enderle said.
Another boost for SoMa
It’s unclear whether this sublease could lead to Apple seeking more space in San Francisco. In addition to its Cupertino headquarters and recent San Jose lease, the company has been furiously leasing space in Santa Clara and Sunnyvale lately.
Subleasing has become increasingly popular as little new office space hits the market this year while traditional companies like law firms and media groups downsize or relocate out of the city. It’s also nearly the only way companies can break into any office buildings south of Market Street.
The South Financial District has about a 7 percent vacancy rate, while SoMa and Yerba Buena has essentially no direct vacancies now though a spate of new buildings with available space will come online over the next few years, according to the brokerage Savills Studley.
San Francisco has about 1.1 million square feet of sublease space available, the most since the dot-com era, according to brokerage DTZ. That kind of space provides growing companies with quick expansion access.
One available floor at 235 Second St. is available immediately, while one isn’t available until the start of next year, according to Cushman & Wakefield.