Commercial Real Estate Blog

Faced with low single digit vacancy rates, sky-high rental rates, and rapid growth, Facebook is looking to leave downtown Palo Alto. Kara Swisher, who also revealed Facebook’s revenue numbers, is reporting that Facebook’s migration will begin as soon as the first quarter of 2009.

This isn’t new news at all since Facebook had been in the market looking at sites outside of downtown months ago, but it does signify the commitment of Facebook to move. The director of facilities for Facebook, Jim Merryman, has likely brought the decision-making powers at Facebook in touch with reality, which is staying in downtown simply is not realistic for a company such as Facebook. Operationally, it doesn’t make a lot of sense either to have a company sprawled out in so many little chunks of space.

Facebook is spread out in about a dozen locations downtown, with one of its most recent being the upstairs of the Magnolia Hi-Fi building and a small office at 101 University.

Facebook is rumored to be considering sites in Mountain View, Sunnyvale, the old HP buildings on Page Mill, as well as taking down space for a site in San Francisco. Facebook was previously represented by Staubach, but is now using Cornish & Carey. It’s likely they will stay as close as possible to Downtown Palo Alto, where until recently Facebook was subsidizing workers who lived in Palo Alto to the tune of $600/month. Rumor is that it was revoked because employees were taking advantage of the rent subsidy by grouping together to rent a place, and then pocketing the balance, meanwhile living elsewhere defeating the purpose of Facebook’s rent subsidy to keep employees close.

Hines is in contract to sell its Parkside Towers office complex in Foster City. The complex is roughly 400,000 SF and is reportedly being sold to Harvest Properties and Invesco for roughly $180M ($452 psf). The complex is about 80% leased and includes tenants IBM, Axciom, and QuinStreet.

 The project was purchased by Hines about two years ago from Equity Office Properties which built the project originally for Inktomi. Inktomi never occupied the complex and subsequently paid a $50M termination fee to get out of its lease.

I suspect after closing rents will move into the $40 NNN rent range and leasing agencies to be swapped from Cornish & Carey to possibly NAI BT Commercial.

Update (03/2008): The project was 99% leased at COE. A 91K SF lease to Rearden Commerce which was announced one day after the initial posting of this item brought the project up to 99% occupancy at the time of sale.