Zendesk poised to sublease 40K sf from Meta in San Francisco

A 435,000-square-foot office building vacated by Meta in Downtown San Francisco is filling up.

Zendesk, a locally based customer service software firm, is poised to sublease more than 40,000 square feet at the 55-story tower at 181 Fremont Street in SoMa’s Transbay District, the San Francisco Business Times reported, citing unidentified sources.

The pending sublease from the Menlo Park-based parent company of Facebook comes some six months after Palo Alto-based Navan subleased 36,000 square feet across three floors at 181 Fremont. Terms of the deal were not disclosed.

And it comes weeks after news of talks between China-owned TikTok and Meta to sublease three floors of offices at the 800-foot-tall skyscraper, with luxury condominiums on the top 17 floors.

Meta leased the offices after the $500 million building was completed in 2018 for occupancy by its Instagram division. 

The tech giant inked the $35 million lease because busing local workers two hours through bad traffic to its hub in Menlo Park had become unwieldy. The lease ends in March 2031.

In January last year, Meta put the building up for sublease, months after announcing it would spend $3 billion to end global office leases to cut costs.

Terms of a pending deal between Zendesk and Meta were not disclosed.

At the end of 2022, the previously public Zendesk went private in a $10 billion deal. 

In 2011, it leased offices at a 111,500-square-foot building owned by ASB Real Estate as its headquarters. By 2019, it had expanded its footprint there to almost 90,000 square feet.

Its lease at 989 Market was set to expire in October last year, though it had the option to extend through June 2027, according to its last public annual report in 2021. It’s not known whether Zendesk exercised its extension option.

The office vacancy in San Francisco in the fourth quarter was a record 35.9 percent after a broad shift led by tech companies to remote work, according to CBRE. The vacancy rate among Class A, Tier 1 offices with full views was 3.1 percent, according to Cushman & Wakefield.

Many tech tenants that had flocked to Mid-Market alongside Zendesk in recent years have left the neighborhood. Spotify left in 2019. Block said in 2022 it wouldn’t renew its lease at 1455 Market Street. Uber, in the same building, then left for a new hub in Mission Bay.

Derek Daniels, a locally based research director for Colliers, said demand for high-quality offices remains strong, as shown by smaller or midsize lease deals. Those transactions are often motivated by the expiration of existing leases, with tenants having inventory to choose from.

“There is a lot of quality, flexible sublease space out there,” Daniels told the Business Journal, adding that 181 Fremont was among the top buildings in Downtown.

— Dana Bartholomew

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