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 Rumor is that it was revoked because employees were taking advantage of the rent subsidy by grouping together to rent a place, and then pocketing the balance, meanwhile living elsewhere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.

Microsoft has launched a $45B unsolicited bid for Yahoo! Combined, the two would be a more formidable competitor to Google, both in terms of search market share, as well as ad inventory. What will be interesting to see is that if the acquisition is indeed successful, to what extend Microsoft will embrace open-source technologies and how it integrates the two companies.

From a real estate perspective, in Silicon Valley, Microsoft may elect to keep things seperate but also has the option of utilizing Yahoo!’s 50-acre campus site in Santa Clara it purchased two years ago to combine operations. Yahoo! is currently leasing most of its Santa Clara facilities on leases which expire roughly 2-3 years from now. Given the current job cuts and overall woes with the company however, it is unlikely that they would break ground on a new campus anytime soon. Microsoft recently renegotiated for a longer term on its 450,000 SF Mountain View campus.

Also today, Kara Swisher revealed financials from Facebook based on a company-wide conference call held by Mark Zuckerberg. Some numbers are below:

• 2007 Revenues: $150 million
• 2008 Revenues: $300 to $350 million (projected)
• 2007 Headcount: 450
• 2008 Headcount: 1,000 (projected)
• 2008 Capital Expenditures: $200 million (i.e., servers)
• 2008 EBITDA: $50 million
• 2008 Cash Flow (EBITDA - CapEx): negative 150 million.

Based on the above, it would indicate that Facebook will likely be out in the market very soon looking for at least 100,000 SF of space. They are also hiring an executive chef which implies that they are emulating Google in many regards and it will likely push their requirement north of 100,000 into the 200,000-250,000 SF territory to accomodate growth simply beyond the 2008 mark.