Pinterest Walks Away From Massive San Francisco Pre-Lease

Terminating the deal for the 490,000-square-foot SoMa space brings a $90 million cancellation fee but gives the company freedom to pursue a more distributed workforce post-pandemic.

88 Bluxome Street, San Francisco. Image courtesy of Alexandria Real Estate Equities

Approximately 18 months after signing a deal for 490,000 square feet at Alexandria Real Estate Equities and TMG Partners’ 1 million-square-foot 88 Bluxome St. mixed-use project in San Francisco’s Central SoMa neighborhood, Pinterest has withdrawn the lease agreement. The popular visual discovery search engine’s change of heart comes as the company rethinks work life beyond the pandemic era.  

“Pinterest is actively recruiting across a range of roles and we’re evaluating our strategy for a more distributed workforce across geographical locations, which affects our office space needs,” a Pinterest spokesperson told Commercial Property Executive. “We’ve explored alternatives to occupying office space at 88 Bluxome St. and have agreed with the developer to terminate the lease.” 

READ ALSO: Office Lease Resolution Strategies for a COVID-19 World

Designed as a high-tech office and laboratory project, 88 Bluxome St. would have provided Pinterest with state-of-the-art elbow room on a campus with community benefits and retail amenities on the same city block as the company’s current headquarters at 505 Brannan St. According to the terms of the 10-year lease agreement, which would have commenced in 2022, Pinterest will incur a one-time payment of $89.5 million as a result of the cancellation. The company dodged a major financial bullet as, if certain contingencies had been satisfied, it would have been subjected to noncancelable minimum lease payments of approximately $440 million.

 Despite the lease cancellation, Pinterest remains committed to its hometown. “We’ll continue to occupy four buildings in San Francisco and believe we have enough space to accommodate our current needs,” the spokesperson added.

The tech firm is also committed to Alexandria and TMG. In 2015, Pinterest inked a full-building pre-lease for the 150,000-square-foot 505 Brannan property, which Alexandria and TMG completed in 2017.

The State of the Market

Like other major office markets across the U.S., San Francisco cannot escape the consequences of the pandemic. The metro recorded approximately 1.1 million square feet of negative absorption in the second quarter of 2020, according to a report by Kidder Mathews. And Pinterest’s lease cancellation is a sign of the times. “The Pinterest lease termination is a reflection of corporate views of the present and the future,” Carla Scimemi, senior vice president & shareholder at Kidder Mathews, told CPE. “A San Francisco office presence will continue to be important—but it’s a signal that present productivity levels are acceptable and future productivity may not be negatively impacted by considering other markets or virtual platforms,” she added. 

However, as many tech companies look to make the pandemic-induced work-from-home trend an extended or even permanent option for their workforce, others are expanding their footprint in certain locations.

In May, video-sharing app TikTok entered into a 10-year lease agreement for 232,000 square feet at The Durst Organization’s One Five One skyscraper in Manhattan’s first major office lease since COVID-19 took hold in March.

In early August, Facebook committed to 730,000 square feet of office space at Vornado Realty Trust’s The Farley Building in Manhattan, marking one of New York City’s largest lease transactions of 2020 to date.

And, in mid-august, Amazon announced it will invest $1.4 billion on the expansion of its Tech Hubs in Dallas, Detroit, Denver, New York, Phoenix and San Diego.

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