How Investor Exit Options Affect the San Francisco Office Market

When it comes to understanding the office market dynamic in a region like the San Francisco Bay Area, there are factors at play which are less than obvious but nonetheless impactful.  One such factor is the drastic decrease in IPOs since 2021.  This decrease is caused by a host of variables, including interest rates/inflation and the overall poor performance of recent IPOs, especially SPACs.  The historical venture capital playbook called for portfolio companies to show substantial revenue growth with limited regard for profit as valuations were (mostly) a multiple of revenue.  The value impact of running the business for profit was largely left to post-IPO (e.g., public market) investors. 

Today, however, with the IPO exit largely unavailable, most startups have no choice but to remain private.  This has caused founders to become more cautious with investor capital, making it last longer.  They’re forced to run the business with more discipline, with an eye to profit.  This, in turn, results in a very different hiring dynamic. 

By extension, a market in which startups are running more like traditional businesses has the broader effect of reducing demand for office space.  This is no small difference, as past markets were heavily influenced by extreme growth mandates which led to excessive hiring.  This new reality has played out alongside more obvious implications from changes in approach to workplace (e.g., hybrid and remote work).