AirBnB’s new offices will cost as much as $97 million over 10 years

888 Brannan: new home of AirBnB

If you were looking for signs of hyper-inflation in the San Francisco real estate market, then look no further than 888 Brannan, an iconic 95-year-old building that till recently played home to San Francisco’s Jewelry Mart. This building is across the street from the San Francisco Concourse Exhibit Center, which is often used to host tech industry events such as Techcrunch Disrupt and Jason Calacanis’ Launch conferences. It is yards away from the Zynga offices.

And it is the new home for AirBnB, a San Francisco-based person-to-person room, apartment and house-rental company that is soon going to be moving to new offices. The company has signed a lease on this space, and has taken a whopping 170,000 square feet of space. The news was first reported by James Temple of San Francisco Chronicle earlier this year. What is astounding is the length of this lease — 10 years — and AirBnB will pay almost $ 97 million over that length of time. The company currently has a 40,000 square foot office in Portero Hill area of San Francisco.

Earlier this week when driving by the building I noticed that the Jewelry Mart was gone but there was some furious activity going in the building. Initially I thought perhaps this was the new Pinterest office. I was intrigued only because we had reported that Pinterest was moving from Palo Alto to San Francisco. Well, that didn’t turn out to be the case. Instead it was AirBnB. The Wall Street Journal recently reported on the growing popularity of what is known as “B” space with the technology companies.

Real estate industry sources tell us that AirBnB has signed a 10-year-term on three floors (floors 3 through 5) for the building at an average rate of approximately $ 57 per square foot per year. The exact terms are that the rent is $ 47 per square foot per year (industrial gross rent) with 3% annual increases. The utilities and janitorial typically work out to about $ 4 per square foot per year. Half of the space is rent free for nine months, and the landlord will provide around $ 8,000,000 to improve their space while also doing renovations to the building lobby and other areas.

Pinterest incidentally has moved into 808 Brannan, not too far from the new AirBnB offices. Pinterest took about 55,000 square feet of space. Our real estate sources say that rents in this region are around $ 50 per square foot per year. At $ 50 per square foot Pinterest could be paying as much as $ 2.75 million in rent every year.

Thank god both these companies are flush these days. Pinterest snagged $ 100 million in new funding to pay the rent and keep hiring all the cool kids. AirBnB has raised a total of $ 120 million in venture capital investments from the likes of Andreessen Horowitz, DST Global and General Catalyst.

While these liberally funded, fast-growing tech companies are having no problems, the smaller startups are finding it tough to find workspaces. When good times return to Silicon Valley, you can count on a sharp increase in the number of startups and the venture dollars invested into these companies, which in turn puts a massive premium on real estate. Even though San Francisco Mayor Ed Lee likes to portray himself as a pro-tech mayor, the fact remains that things are getting rough for the little guys.