Silicon Valley is home to the priciest office space in the U.S.

Silicon Valley is home to the priciest office space in the U.S.

Posted by John P. Bradford // December 27, 2016

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Aydin Senkut started his venture capital firm Felicis Ventures in San Francisco a decade ago. Five funds and more than $430 million later, Senkut is ready to open an office on Sand Hill Road, alongside such Silicon Valley institutions as Kleiner Perkins Caufield & Byers and Sequoia Capital. But hes going to have to pay up.

Located in Facebook Inc.s hometown of Menlo Park, California, Sand Hill Road hasthe most expensive office space in the U.S., even as the startup market moderates, according to data from commercial real estate firmCushman & Wakefield. At an average of $129.91 per square foot annually, its up about $6from last year and exceeds the cost of renting high-end offices inGreenwich, Connecticut, and on New Yorks Park Avenue. It is also far more than the $75.39 for comparable space in San Franciscos south Financial District, which saw a price increaseover the last year similar to its neighbor in the Valley, said Robert Sammons, a regional director at Cushman & Wakefield.

Whilemany VC firms are opening offices in San Francisco, Senkuts move underscores that tech investorsare willing to pay a premium for close proximity to other big firms, the companies that might buy or do business with their startups, and the suburbanhomes of investing partners. What Sand Hill Road lacks is vibrant street life, restaurants, shops or access to major public transportation routes.On either side of the roughly two-mile strip between Interstate280 and Junipero Serra Boulevard, wheremany of the worlds top VCs hang their shingles, sit low-slung woody walk-ups, nestled among trees, rosemary plantsand parking lots.

Felicis Ventures, a backer of clothing startup Bonobos Inc. and satellite maker Planet Labs Inc., is in the process of relocating from its office in downtown Palo Alto, California, the second-most-expensive market in the U.S., according to Cushman & Wakefield. The high prices stem, in part, from the growth of Palantir Technologies Inc., a venture-backed company that has become a major tenant in the area, along with the increasingnumber of venture firms and startups there, including Wealthfront Inc. and Houzz Inc. The San Francisco Business Times reported this month that Cloudera, a data analytics startup,leased 225,000 square feet in the area.

Renton Sand Hill Road is generally costlier, but it can be easier to find larger spaces. Felicis Venturesrecently signed the lease ona 10,000-square-foot officeat 2460 Sand Hill Road, where Senkut plansto host big events for his startups and investment prospects. Hedeclined to discuss how much hes paying for the space.Lets be honest: Its still a high rent, he said.

While the startup world has sobered up a bit this year, with wavering valuations afflictingsome unicorns and fewer investments to go around, it hasnt much affected the economics of venture firms. VCs raised$22.9 billion in the first half of the year, according to the National Venture Capital Association, a trade group. That puts the industry on track for the best fundraising year since 2000. In April, Felicis Venturessaid it raised a$200 million fund, almost double the size of its last one.

Todays rents are still nowhere near what landlords demanded in early 2008 before the financial crisis. Back then, asking pricestopped an average of $170 a square foot on Sand Hill Road, said Cushman & Wakefield.

For architecture lovers, Sand Hill Road doesnt offer much to look at.But the areas blandness is precisely its appeal, providing abrick-and-mortar equivalentto the understated dress code of a blazer and jeans favored by many VCs. Theres a little bit more of a low-profile thing going on, said Jeff Cushman, executive managing director for Silicon Valley at Cushman & Wakefield.

Crucially, an address on Sand Hill Road establishes cachet, saidBrad Van Linge, senior managing director at real estate firm Newmark Cornish & Carey. The entire world looks at that and says, OK, we know youre somebody, he said.

The new digs for Felicis Ventures sit in a complex owned by DivcoWest thatcurrently boasts Sand Hill Roads highestasking prices on the market, according to two brokers, who asked not to be named for fear of jeopardizing rental negotiations and relationships. This newly constructed building is listed at$132 a square foot annually, driven by such amenities as unusually large decks and, in a rare feature for the area, underground parking. Rent for an office of about5,000 square feet, typical in the area, wouldcost as much as $55,000 a month.

Tenants on the other side of the streetat the Stanford University-owned complex next to the clubby Rosewood hotelare currently paying the most in rent, with prices above $140 a square foot annually, the brokers said. That location, home to Andreessen Horowitz and Coatue Management, has no space available, according toStanfords property management group.More from Bloomberg.com

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This article originally published at Bloomberg here

Read more: http://mashable.com/2016/09/19/vcs-silicon-valley-highest-rent/