I was intrigued to read this article a few days ago that the most expensive office space in the country is here in Palo Alto. The most extreme is up on Sand Hill Road, which is venture capital-land, and nearby on University Avenue (which the article incorrectly states as the headquarters of Facebook, which was never true).
It brings to mind a vivid memory for me. As you no doubt recall, the NASDAQ bubble burst in March 2000. At the time, I was running the company I had started, Prophet Financial Systems, and we needed office space, since the delapidated hair salon (seriously………) we were using as office space was going to be demolished.
The interesting thing is that even though the bubble had clearly burst, the demand for real estate for startups had not. It's sort of like the commercial real estate market didn't get the memo that the bubble had popped. I spent the summer looking for office space, and let's just say the pickings were slim. At one point, I even considered a smelly, greasy abadoned restaurant space for our office.
I finally wound up renting a century-old house in Palo Alto. Here it is:
The rent was $17,000 per month, and at the time, I was glad to pay it! Just to be clear on this, it's not like we had millions of dollars of VC money in the bank. Those dollars really mattered, and it weighed on me to pay that much, but – well – we needed somewhere for our people to sit.
When we had out-of-town visitors, I could tell they felt a little sorry that we were living "on the cheap" in such a run-down place. Little did they know that we were paying far more than they were for their midtown Manhattan "A-class" office space.
It didn't take long, though, for office space to start getting back to reality, as more and more startups went belly-up. Even during our lease, I negotiated the monthly rate down to $15,000, then $12,000, then $10,000. I don't remember the precise figures, but I do know that, even though we were contractually obliged at a given rate, I was still able to get things trimmed to more realistic levels.
By late 2003, when we were ready to move again (this time, to a really, really nice office in a proper building), the rate was very reasonable again, and we were able to have a much nicer, much bigger office for a small fraction of what I had been paying before.
My point in this is that I am getting a sense of deja vu about this valley. The bubble has burst, but people haven't really accepted it, and there is still, in some quarters, a sense that things aren't just good, but better than ever.
If nothing else, I'm sure glad I don't need office space. I'd rather keep the cash for myself.