San Francisco Bay has been associated with tech start-ups for some time now and this would appear to be spreading towards the Oakland real estate market. Relatively new technology companies such as Uber are moving into the region and attracting a following of small start-ups. This is beginning to change the whole dynamics of the local real estate market with relatively young technology companies demanding very different terms and conditions as well as very flexible lease arrangements.
It is common knowledge that modern day technology based start-up companies seem to attract an array of unusual demands. This is perfectly replicated with Google which has a very different working practice and working environment when compared to more traditional companies. So, how are new tech start-ups impacting the Oakland property market?
Flexible lease arrangements
Real estate agents across the US have been used to five-year, 10 year and 15 year leases which allow them to plan ahead and factor in their profits. However, it seems that the modern day tech start-up is looking more towards 90 days, 120 days and one year leases. While many are prepared to pay a premium for such relatively short leases it does mean a significant change in the working practices of local real estate agents.
In days gone by real estate agents were able to dictate and advise on the terms of leases to new companies. These days would appear to have gone and with the US property market showing signs of life, but concerns regarding the worldwide economic outlook, it is the new start-up companies which are dictating terms. In many ways it will be the more accommodating and non-traditional real estate agents who will grab the lion’s share of this growing market but it will certainly be a culture shock for many.
These new technology companies want an array of facilities within a stones throw of their workspace and offices. We have demands including yoga studios, podcasting studios, non-tech areas and an array of food outlets. These are just a few of the matters being discussed between potential tenants and real estate agents.
A perfect example of this changing environment is a recently renovated department store in downtown Oakland. The ground floor has been designed to incorporate a basketball court, shuffleboard table, videogame area and believe it or not a 500 ft.² community hammock made from aircraft wire. Yes, the days of the traditional office lease have long gone in Oakland.
Are short-term leases the way forward?
The longer a lease the easier it is to factor in long-term returns when taking into account development and running costs. While short-term leases may demand something of a premium over their long-term counterparts there are obvious risks that tenants will not renew. However, areas such as Oakland have a raft of new technology start-up companies looking to set up camp in the region. As a consequence it is highly likely that there will be an abundance of potential tenants in the short to medium term should current tenants decide not to renew their leases.
The start-up arena itself is very volatile and difficult to predict and this can be multiplied tenfold for the technology start-up industry. Interesting times ahead for the Oakland real estate sector.