Chilling Thing Twitter Said about San Francisco’s Office Bubble

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Some of the smartest money got out last year.

Twitter is shaking up San Francisco. It’s the city’s 10th largest employer, and second largest tech employer, after Salesforce. But it hasn’t yet figured out, despite a decade of trying, how to make money. Last October, it announced that it would lay off 8% of its workforce. A couple of weeks ago, it reported a second-quarter net loss of $107 million along with disappointing user metrics and lousy projections. Its shares have lost 74% since their miracle-IPO-hype peak at the end of December 2014.

And now Twitter is dumping nearly one third of its total office space on the San Francisco sublease market.

It leases a number of floors in the two buildings at Market Square. The four floors it put on the sublease market total 183,642 square feet of “fully furnished” office space with workstations for 1,416 employees, according to a marketing brochure by corporate real estate firm CRESA.

It’s the largest sublease space now available in San Francisco.

The largest of the floors, at 78,792 square feet, is at its 1355 Market location, the iconic former San Francisco Furniture Mart that Twitter moved into in 2012. The floor comes with “600 workstations, 49 conference rooms, multiple collaboration/lounge areas, 2 kitchens, 2 training rooms, and a Mother’s room,” according to the brochure.

It also listed three floors at the adjacent One 10th Street building that it moved into in 2014. The floors, 34,950 square feet each, are also fully furnished with similar amenities, and earned a “2016 International Interior Design Association – Honor Award,” according to the brochure. Twitter spared no expense before its IPO to dazzle investors with its buildings and show them what noble material it was made of.

San Francisco’s darling even extorted a highly controversial payroll tax exemption for six years from the city by threatening to head out of town when it was looking for larger digs in the neglected Mid-Market area.

All spaces listed are available “immediately” and rent is “negotiable,” the brochure says.

Twitter has been shrinking from its grandiose plans. In October last year, it abandoned plans to lease an additional 100,000 square feet at the building where Square is, at 1455 Market. Both companies share the same CEO, Jack Dorsey.

But this comes at an inopportune time for San Francisco’s office market.

According to commercial real estate firm Savillis Studley, vacant availability in Q2 rose to 8.3% (up from 7.7% in Q1), and Class A availability hit 9.2% (up from 8.4% in Q1). In the Financial District, it “spiked” to 9.8% (up from 8.6%). Despite “a flurry of large subleases and these direct deals” in Q2, with Fitbit, Lyft, and Stripe signing the largest deals, leasing activity over the past four quarters plunged 31% from the five-year average to 5.9 million square feet.

“Caution prevailed,” the report said, as “more firms coped with funding shortfalls by cutting back or considering relocations to other markets.”

After a relentless five-year boom, average asking rent, at $64.30 per square foot, according to Savillis Studley, is among the most outrageously expensive in the country and nearly twice the national average of about $33 a square foot.

That might not have made any difference to startups that were drowning in cash and faced no pressure to ever make money, or were even encouraged to burn through as much cash as possible to quickly grow into the next Facebook. But that era is now being superseded by the “post-unicorn era,” as Dropbox CEO Drew Houston called it so elegantly, and money suddenly matters.

But some of the smartest money already got out, at the peak last year.

San Francisco-based real-estate fund Shorenstein Properties acquired Market Square in 2011 for $110 million, according to The Registry. For another $200 million, it redeveloped the former Furniture Mart into a tech hub. With vestiges of hope still clinging to Twitter before the layoff announcement in October last year, and with office prices and rents soaring, Shorenstein decided to unload the property – and made a killing.

In August last year, it sold a 98% stake to JP Morgan Asset Management for $936 million, or $877 per square foot. This is what a totally crazy property boom will do, along with impeccable timing and knowing your way around city politics. It was one of the highest per-square-foot prices in the city’s history.

But the office boom faces two challenges: new office towers that are sprouting like mushrooms just when employment growth faces iffy prospects. Twitter isn’t alone. Numerous companies have started to lay off employees, even as others are still hiring. And employment has peaked.

In June, according to the California Employment Development Department, the number of jobs in San Francisco – 533,200 – was back where it had been in November last year:


I’m now getting “numerous” reports, anecdotally – up from just “one” four months ago – that people, even tech workers, beyond the age of Millennials, so folks in their early to mid-fifties, are getting laid off, and that they’re having trouble finding another job here. That doesn’t bode well at all for San Francisco’s commercial real estate bubble. When times get tougher, no one needs vast amounts of empty and utterly unproductive office space that is among the most expensive in the country.

But San Francisco is so expensive overall that a lot of people, once they lose their jobs, choose to leave and head to where life is more affordable. So this is the kind of problem San Francisco really doesn’t need at the moment. Tremors are already going through the condo market. Condo prices are under pressure. Sales volume has been down all year. The luxury end is in trouble. And now this: Read…  Is the “Leaning Tower of San Francisco” the Only One?

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  48 comments for “Chilling Thing Twitter Said about San Francisco’s Office Bubble

  1. August 8, 2016 at 10:57 pm

    “When times get tougher, no one needs vast amounts of empty and utterly unproductive office space that is among the most expensive in the country …

    .. that is also sinking into the ground.

  2. Paulo
    August 8, 2016 at 11:01 pm

    Maybe they’ll keep laying off until there are only 140 characters employed? Ooops, I meant twits employed, tweeting about themselves.

    Sorry, I couldn’t resist.

    Seriously, something so flippant as Twitter is a metaphor for the times. It will be a grand day when it finally shuts down. And then Donald Trump can buy up all the vacant office space and make it all great again.

    • nick kelly
      August 9, 2016 at 1:51 pm

      And although WR is perfectly correct to call TWIT tech, since that is the market designation- it and other social media outfits are not actually computer technology companies- they are users of it.
      New, innovative and PRODUCTIVE technology is not prone to the sudden contractions of a fad.
      Similarly, using very basic software to allow unlicensed folks to use their cars as taxis is a great idea- because it helps to alleviate an artificial shortage and corresponding overcharge.
      But it isn’t a breakthrough in technology.

      Is this just semantics? To some extent, but since one test of an economy’s health is its level of innovation, I think this economy may be awarding itself breakthroughs in name only- or in other words, resting on the laurels won in earlier, real, advances in computer hardware and software.

      • raoul
        August 10, 2016 at 5:23 pm

        nailed it! this economy is largely built on hype.

        the Emporer is naked.

      • Lex Lutheran
        August 15, 2016 at 5:04 am

        Excellent point, nick.

  3. Sabbie
    August 8, 2016 at 11:52 pm

    Nice article, but I missed the “chilling thing”?

    • August 9, 2016 at 12:04 am

      A commercial real estate bust?

      • Sabbie
        August 9, 2016 at 12:19 am

        I guess I was looking for a particular statement/sentence sorry.

        • Kasadour
          August 9, 2016 at 4:42 pm

          Me too. I was wondering what chilling thing they said? I couldn’t find the chilling statement but this situation is certainly chilling.

  4. interesting
    August 9, 2016 at 12:14 am

    So could the moment where Twitter banned Milo for life be the “jump the shark” moment for the company? I find it odd that a company that isn’t profitable would ban anyone.

    Also, i thought if one was in business that one had to make a profit within a certain time frame or the “business” was considered a hobby and then writes offs were limited? I did a quick goggle search and i guess these businesses aren’t “hobbies” but can a business lose money forever….cough cough…..Amazon….and keep going? Apparently they can

    • Bookdoc
      August 9, 2016 at 12:41 am

      Cough, cough….Tesla,,,

    • August 9, 2016 at 12:50 am

      They can lose money until they run out of money (investors stop giving them money). Amazon is not a great example because it knows how to make money when it wants to. Tesla would be the example you’re looking for.

      • Kasadour
        August 9, 2016 at 4:44 pm

        Do you mean raise money or make money?

        • August 9, 2016 at 5:09 pm


          As a company you can go on for a very long time if either you make money or you raise money.

          Facebook makes money. Tesla raises money. Once Tesla runs out of investors willing to hand over their money, it will either have to make money or wither.

      • Ryan
        September 1, 2016 at 3:39 am

        Tesla is such an over-hyped company. I see employees of most tech companies just carry a back-pack with their companies name on it, but Tesla employees they wear Tesla jackets, Tesla hats and I kid you not Tesla belts. The Tesla employees are the most self-absorbed and self-assured people in the world. They truly believe they have reinvented the wheel and the automobile all at the same time.

        The way that Tesla employees wear so many articles of clothing with the Tesla logos on it, reminds me of the scene from “Wayne’s World” when Garth wears a Reebok hat, Reebok shirt, Reebok shoes etc.

        It has been awhile for Tesla to finally make their big breakthrough. Plus, when electric cars do become more affordable, what is going to stop GM, Ford, BMW, VW, Honda, Nissan, Toyota from making the same thing and squeezing Tesla out of the market? Are you telling me that all those auto companies that have been making cars for nearly a century and doing it profitably, are going to be outdone by Tesla which has only been in the automobile business for say, a decade and has never been profitable selling automobiles?

        I do not want to get off topic because this article is explicitly about Twitter and their sublease space. But this belief in Tesla is just as insane as the belief in this housing and venture capital bubble.

        • September 1, 2016 at 7:40 am

          Well said, Ryan!

          But I’m not sure why/if you think we disagree on Tesla. We totally agree – including that the big automakers will flood the market with models once batteries get cheap enough to make these cars economical at non-luxury price points.

          And I do not understand why investors keep giving it more money.

    • Mary
      August 9, 2016 at 9:44 am

      People are getting tired of Twitter’s refusal to enforce its own terms of use. It has become the medium of choice for guys who really, really enjoy attacking and humiliating women and minorities. Warriors in that noble battle against “political correctness.” Like Milo. Like Trump.

      • Chicken
        August 9, 2016 at 12:45 pm

        Yes we need government mandates regulating non-PC thought.

      • Vespa P200E
        August 9, 2016 at 12:56 pm

        Funny TWTR bans Milo for life yet allows jihadist and uber liberal touts to attack the right.

        For the record – been shorting TWTR at $17 range and getting tad nervous about whether to close the short positions or double down but can’t find shares to short more.

        • August 9, 2016 at 1:06 pm

          Watch out with your short: someone stupid, like Microsoft (which has a perfect history of doing this), might be interested in buying Twitter and might be willing to overpay by a huge amount.

    • Catalysis
      August 9, 2016 at 11:15 am

      Nobody even knows who Milo is outside of the right-wing blogosphere. Probably the most impotent group of people in America right now.

      • raoul
        August 10, 2016 at 5:40 pm

        united states of amnesia …

        50% of the population has the knowledge and understanding equivalent to a twelfth (12th) grade education. the vast majority of the remainder HAS LESS THAN THAT.

        who you gonna call, ghostbusters?

        • Kev C.
          August 10, 2016 at 5:53 pm

          joke: I call people who demolish hype and self-serving braggarts with a gust of fresh air in the form of empiricism, in other words……………………………….. Boastgusters!

      August 9, 2016 at 5:36 pm

      The large internet providers must block and censure those “THEY” don’t like. It is the name of the game.

      Try getting your local, dead, news paper to discuss ANYTHING about Income Tax, the Federal Reserve, Race & IQ, etc. Nothing.Silence.

      Twitter, Facebook Google, do not care about “truth”. They will shut you down and take the hit. Want to know why? You will need to search really deep into who runs/controls these companies.

      • Lex Lutheran
        August 15, 2016 at 5:12 am

        You’re assuming that some kind of dialog is occuring, even if it’s only one sided. Not true. Friend related a big ‘promo’ his group ran on Twitter from someone famous in his particular tech space. The tweet about the article written by selectively-famous-person was retweeted hundreds of times BUT…
        Nobody actually went to the website to read said article! Zero. Friend was devastated. It’s a wild world out there. Bye bye Twitter.

    • J. Landsdowne
      August 11, 2016 at 9:13 pm

      twitter censoring its users will b its downfall – stifeling the 1st Amendment & political correctness doesn’t work w a product like twitter – they are their own worst enemy.

      • August 11, 2016 at 11:40 pm

        But wait, J. The 1st Amendment applies only to government censorship, not to corporations, private websites, Twitter, or your living room. There is no constitutional protection of free speech in a corporate environment. They can do whatever they want with regards to free speech.

        That said, Twitter is already in trouble, from the stats that I see on Twitter Analytics. People interact with it less and less.

  5. michael
    August 9, 2016 at 7:21 am

    That is is a great point why does anyone give Tesla Money?

    • Intosh
      August 9, 2016 at 11:58 am

      Because the stock has been going up; even though, it has been going up by sheer hubris and hype, nobody cares as long as it is going up.

        August 9, 2016 at 5:41 pm

        In the 1880’s, the value of a stock was based on the Dividend. The New York Central, owned by the Van der Bilt family, always used 8% as the dividend. Imagine that today.

        IF a stock does not pay a dividend, it is basically worthless, especially if it is mostly owned by the public. Andrew Carnegie’s Steel company never paid a dividend for about 20 years since all profits were pumped back into the company. He owned 51% and thus controlled it.

        By 1900, Carnegie, with only 3 Steel Mills, produced more steel than all of England. When he sold out to J.P.Morgan and Rockefeller (largest stock holder in the final US STEEL corp), he was paid $440 Million, of which he got about $300 million in GOLD BONDS (now, why is that?)

  6. william
    August 9, 2016 at 7:48 am

    I was in Dropbox’s office. I saw no one over 50, few over 40. All the offices in San Fran are like that. Everyone’s wearing Apple watches and Fitbits. No Windows PCs in offices anymore either, just Macs.

    Granted, in San Jose and surrounding areas, there are more older workers.

    • polecat
      August 9, 2016 at 1:01 pm

      well….anyone over thirty has already been to ‘festival’ due to that glowing, blinking implant on their palms……….hence, all the ‘kids’…. ;’)

      ……..the Tech World fountain of Youth…….

    • Vespa P200E
      August 9, 2016 at 1:18 pm

      I’m now getting “numerous” reports, anecdotally – up from just “one” four months ago – that people, even tech workers, beyond the age of Millennials, so folks in their early to mid-fifties,

      I was in hardware industry out of college (company went BK after almost 25 yrs) and 16 yrs ago for at the time largest software company. We had older workers back in those days and thought our colleague who has just turned 50 yrs old was really old (I was 40 yrs old at the time). I think INTC, HP (the real survivors) and CSCO or hardware companies may have some older workers but not at that the GOOG, Fakebook and other SillyCON valley software companies. AAPL might be an exception as many of my old colleagues from the once largest software companies got jobs there in their late 40’s/early 50’s.

      Anyway it would really suck to be in the 50’s with kids in college to be out of work especially in the SF bay and SillyCON valley. I was there for 2 yrs of unemployment/underemployment on the last downturn and had to relocate to SF bay area where the jobs were. Good thing I got into pharma industries where old workers are more “accepted”.

  7. Shawn
    August 9, 2016 at 8:19 am

    Hopefully people will start moving out of the city and housing pricing will come down. Then again, China will try to write off it 24t dollars in debt so save it’s banks and that should bring another tsunami of Chinese housing speculators, I mean refugees, to our shores. Fucking sucks.

  8. wholy1
    August 9, 2016 at 10:05 am

    It’s all RELATIVE until . . . it’s NOT !
    The “Moneyed” [d]elite PTB’s have and will continue to lead/”feed” before/on the CB debt-based fiat “currency” UNSECURED arbitrage/margin-monkeys. At some point, the “value” of a REAL “asset” is defined by its exigent DEMAND, convertibility coifficient and the organized power/force required to [with]hold/secure it from fraudulent/hostile seizure – organized (gov/corp agents/thugs or . . . UNorganized (let your imagination/nightmares wander).

  9. Ptb
    August 9, 2016 at 10:56 am

    I know someone that has a nice 20 unit apartment complex on Franklin st in SF. He said rent prices topped out last fall and now it’s getting tougher to hold the pricing. It’s time for a correction.

    • Vespa P200E
      August 9, 2016 at 3:06 pm

      I sold my house in late July in SF east bay area and renting nearby. Noticed that the housing market is stalling both in prices and time on the market lately.

      Houses were going pending in a few days this past winter and spring in our neighborhood. We listed our house once school was over in mid June and thought the RE market would get hotter but we were wrong and the RE agents were telling us it was good time to sell and it will soon become the buyers market. We had 2 offers and buyer who lived 4 blocks away looking for larger home in a court location bought the house as the 1st buyer who was RE broker backed out after 5 days. Surprised by lack of Chinese buyers as 2 offers came from Indians. RE agents said Chinese buyers pulled back this year due to RMB devaluation and harder to get money out of China.

  10. michael
    August 9, 2016 at 3:28 pm

    Nice timing Vespa just before someone pulls the fire alarm on the housing market.

    • Vespa P200E
      August 9, 2016 at 8:25 pm

      Tough to call absolute tops and bottoms though. There is a high cost associated with selling a house and moving not to mention getting the house ready and pack/unpack. My wife and kids did a lot of work. My past 2 other sales were all paid for as part of job relocation and I paid it all on the recent sale.

      My impetus was that I was kicking at myself for not selling the house back in 2007 in Seattle. I sold a rental in LA area back 2004 thinking it had a nice run but I was too early so it’s really a crapshoot.

  11. Kasadour
    August 9, 2016 at 4:59 pm

    So Twitter can’t make money? I have never been on Twitter so I don’t know how it’s formatted, but I thought all these free social media platforms made scads of money via advertising.

    Does anyone know what the actual conversion rate(s) are? Because if they are zero to low, which I believe they are, how long before the marketing managers of these companies realize that their precious advertising dollars would be better spent elsewhere? And that goes for any/all internet advertising.

    A million (billion) eyes X ø still equals ø.

  12. August 9, 2016 at 5:30 pm

    It’s extremely nice to read an undazzled, matter-of-fact news story about Twitter the organization, and what they mean on the ground. The vast majority of references to Twitter in journalism take Twitter as a piece of the furniture, and leap right to quoting statements that were said over Twitter-the-medium (“so-and-so tweeted out blah blah….”), which I think creates a sort of black hole around the company itself. Fortunately things like layoffs and real estate sell-offs are inherently real and can’t be spin doctored by diverting attention back to the medium and what somebody said over the medium.

    • Vespa P200E
      August 9, 2016 at 8:34 pm

      There was an interesting blog on ZH today about P&G Marketing Head questioning the value/effectiveness of ads thru social media. P&G is spending more on TV ads which makes sense with the ad blocking add-ons for the browsers.

      That said Fakebook had gangbuster quarter along with Alphabet. I think the 2nd tier social media companies like TWTR will take an ad hit followed by Fakebooks of the world if the economy stumbles which is hard to make calls due to the # cooking by the Obama admin. That said whoever wins the election this Nov may be faced with lousy economy tiptoeing back to Great Recession with or without made-up #s.

  13. wholy1
    August 9, 2016 at 7:22 pm

    “tweet, tweet”
    The sound of the canary in the coal mine?

    • August 11, 2016 at 5:50 pm

      You’re not confused. This is a fact: the building boom in SF continues unabated, even as oversupply in condos and apartments (a glut) is starting to have a serious impact, and as soaring supply in office space is coinciding with sublease space now coming on the market (including Twitter’s).

      Long live the building boom!!!

  14. Scott Reimers
    August 12, 2016 at 6:01 am

    As a 30 something who is finally a decent earner due to long term investments in my own businesses, I’m building cash and waiting for the end of the current RE bubble in Reno. A buyers market is a terrible thing to waste, but I missed the Reno buyers market of 2009 where house prices caved from an average of $300k+ to around $100k over the course of a little over a year before slowly increasing again. We had 3-4 bedroom foreclosure homes like the one I was renting for $1000/mo selling for $35k-50k. *Weeps at missed opportunities*

    For a while after the crash, the vast majority of sales were pure cash by Hispanic families (I has RE clients at the time). Eventually lenders eased back into willingness to loan in Reno at the same time Chinese Money started flooding in (chasing what seemed like obviously good investments).

    Home prices climbed back to near their 2008 peaks (and far beyond for high end homes), but now that Chinese money isn’t flooding in anymore, I’m finally watching for sale signs actually be posted (instead of a property selling before they post the sign) and hang around for a couple months while the house sells to actual home buyers who want to live in the place rather than foreign investors.

    Wolf and Mish have been great at pointing out where the financial insanity is, but as Vespa mentioned above, it’s bloody hard to know when people will finally admit the Emperor has no Clothes and stop reaching new levels of crazy.

    Unlike 2008 our market is much more diversified. Building has been good for business, but it’s not 30% of our economy like it was in 2008. I figure unless we have another large recession/depression, at best I’m gonna get a 30-50% deal from today’s high prices. But hey… I can be patient and shop smart to make sure the home and payments are going to work for my family. :-)

  15. Ryan
    September 1, 2016 at 3:20 am

    I was just curious, Mr. Richter are you German or Austria born? I am asking because you have that same insightful, dry sense of humor that speakers of the German language possess. When I was a foreign student in the town of Mainz, my host father and other Germans I met, had the same type of humor. Many Germans would relentlessly poke fun at the fact that the U.S. allowed so many nut cases to have access to guns or that we still had the death penalty. But I digress, your insights about my native area of SF Bay Area are quite accurate and done Ina very dry and funny manner.

    • September 1, 2016 at 7:45 am

      I’m of Bohemian descent, was born in Germany, and moved to the US in my teens. My German is terrible – all Germans laugh when I speak German. And my sense of humor is American-made.

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