I Left My Staff in San Francisco

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Silicon Valley, whose unique mixture of established computer companies and experimental startups congealed decades ago around the research communities spawned by Stanford University and early denizens like Hewlett-Packard (HPQ) and later, Intel (INTC), has long been the tech industry's hub. That's unlikely to change anytime soon. In fact, Valley companies have long maintained small San Francisco outposts to be closer to customers and young talent, and Intel and HP have also kept small offices in the city. Yahoo's (YHOO) Flickr team and other groups work downtown, and the company opened an idea incubator (BusinessWeek.com, 2/9/07) called Brickhouse in the city's South of Market district in 2007.

It's not that San Francisco real estate is cheap; the average asking price for office space in the city rose to $43.10 a square foot in the first quarter, compared with $42.02 at the end of the fourth quarter, even as vacancies rose 0.3%, to 8.7%, according to commercial real estate broker CB Richard Ellis Group (CBG). By contrast, rents in Silicon Valley averaged $36.24 a square foot at the end of the first quarter.

Flight from the Burbs

But the migration toward SF has sped up amid a pitched hiring battle among companies for technical talent, a desire to retain top employees who live in the city, and the advent of $4-a-gallon gasoline. The move also reflects a larger national trend toward urbanization that's seeing many workers in their twenties and thirties eschew suburbs for hubs like San Francisco, Boston, and Atlanta. While the overall economy is slumping, and industries like banking and auto making are cutting back on staff, tech companies are still hiring and competing for job candidates.

"Companies need to be where their talent wants to live, and in the Bay Area that means San Francisco," says Jim Zemlin, executive director of trade group the Linux Foundation, based in the city's Potrero Hill neighborhood. "Our staff values an urban lifestyle and a short commute. You won't catch us in San Jose anytime soon."

Yet even the most ardent proponents of San Francisco have to accommodate the Bay Area's suburban workforce. Salesforce.com (CRM), the San Francisco-based maker of customer-management software, leased a building owned by former competitor Siebel Systems in San Mateo, Calif., in 2006 to host meetings and house employees who live in the Valley.

But Salesforce.com is also growing quickly in San Francisco. In December, the company expanded from its One Market St. headquarters into a nearby office at 101 California St., where it's occupying two floors and leasing an additional six. The prime real estate affords CEO Marc Benioff a view of the Ferry Building and the bay from his window at One Market St. At the same time, it helps hiring managers woo staff and salespeople clinch deals, says Vice-President Bruce Francis. "This is a great place to bring customers from out of town," he says. Taking a jab at Benioff's former employer and competitor Oracle (ORCL), based in Silicon Valley, Francis adds: "We would not want to work in Redwood Shores."

Ricadela is a writer for BusinessWeek.com in Silicon Valley.