Some experts are indicating that technology tenants (tech tenants) in southern California could be at a historic high. Consider the amount of office spaces occupied by tech companies in the following areas.
San Francisco Bay Area: approx. 30%
Silicon Beach (western Los Angeles): approx. 15%
Bellevue, Washington: 70%
Seattle, Washington: 45%
The surge in tech leasing has southern California rental properties experiencing escalated rental rates and decreased vacancy rates. Considering that, it’s not surprising that property owners are focusing on attracting even more tech tenants because of the benefits they bring to the lease arrangement. Tech tenants tend to use office space in new and different ways regardless of the size or maturity of the company. This trait of the popular tenant is inspiring many landlords to rethink traditional viewpoints. Just use caution and take action to maintain protections relating to cash flow, building value, etc.
Having spent some time generalizing about tech tenants, it’s important that we also point out that every tech tenant is not actually the same. Landlord’s handling tech tenants or in pursuit of tech tenants for their southern California properties would do well to consider the main categories a tech tenant would fall into and what that means for their company’s leased location. Based on the maturity of the company and their financial matrix, there are three general (and overlapping) categories that most tech companies will fall into: startup, emerging and mature.
The startup tenants are often the most dynamic. Their business is in the earliest stages of development – creativity is still first and foremost on their minds. During lease negotiations, they are usually interested in significant creative amenities (i.e. rock climbing wall, slides, floor to floor slides or poles, etc.)
The emerging tenants are those that have become a bit more established. They are usually either getting ready for or have just recently completed their initial public offering or IPO. They usually show no actual earnings history, but have notable economic potential. Their lease negotiations tend to be more dependent on finance-focused leadership with more conservative approaches to space use in comparison to startup tenants.
The mature tech tenant are those with a history – both of stead revenue and profits AND brand/name recognition. They’re the tech companies that you know and love like Google, Facebook, Netflix, Apple, etc. The mature tenant is usually highly focused on high quality work environments in great locations. They also often lean towards “campus-style” work centers.
For more information on negotiating contracts for the tech tenant, please get in touch with an experienced real estate attorney at The Law Office of Retz & Aldover LLP.