LendingClub joins the Bay Area exodus

The head office of LendingClub Corp. in downtown San Francisco has already brought many benefits that burgeoning technology companies are using to attract workers and make them happy once hired: kitchens with snacks, mini golf, foosball table , spa.

Now, the pioneer of online lending is reducing equipment and labor as well. The company announced this week that it will move 350 jobs in Utah, including customer support staff, to cut costs. The cuts will help it reduce by over 40% the footprint of its offices in the city, the latest victim of the city's out-of-control property costs.

"Developing exclusively in San Francisco just does not make sense financially," said general manager Scott Sanborn in a memo to staff, citing the exorbitant cost of office space in the city. "As difficult as the decision is, it's absolutely the right thing for the company and our shareholders."

Business leaders and executives are increasingly struggling to do business in the San Francisco Bay Area, and in recent years the pace of announcements announcing job creation in lower-cost areas has increased. accelerated. While the concentration of highly skilled workers in San Francisco makes it a favorite spot for many employers, companies are turning to other cities for operational jobs that can be done anywhere.

Charles Schwab Corp., the discount brokerage firm that has been based in San Francisco since the 1970s, has relocated thousands of jobs to the region. The drug distributor McKesson Corp. he's settled in Texas and moved his headquarters from San Francisco to Dallas last month. Even tech giants such as Apple and Amazon.com, who are still adding employees in the San Francisco Bay Area, are also turning to cities like Nashville and Austin for part of their expansion.

Real estate savings from weight reduction in the San Francisco Bay area can be significant. Average rents for offices in San Francisco have risen 172% to $ 82.88 per square foot since 2010, according to real estate services company CBRE Group Inc. In the Salt Lake City area, where the LendingClub is expanding, they only increased by 16% during this period. at $ 23.45 per square foot.

But the cost of employing people in one of the country's most expensive real estate markets is an even bigger factor for many companies leaving San Francisco, said Colin Yasukochi, director of research for the West CBRE region. The average salaries of sales, operations, administration and marketing personnel are approximately $ 47,000 per year in the Salt Lake City area, 36% lower than in the Bay Area. .

San Francisco has "become much more of a high-value innovation-type capital for these companies," said Yasukochi. It's an "expensive proposition" to have city employees doing work that could easily be filled elsewhere.

Even with departures, demand for San Francisco offices remains strong and vacancy rates are close to the lows of the decade. A local cap limits the number of new offices that developers can build in the city, while local businesses such as Uber Technologies Inc. and Airbnb Inc. have a voracious appetite for what is available. At the same time, Silicon Valley's tech giants, including Facebook Inc. and Google's parent company, Alphabet Inc., are strengthening their presence in the city to attract the best talent.

So, many companies will probably queue to take the offices released by LendingClub. San Francisco still has one of the deepest talent pools among the essential tasks that technology companies must fill in engineering and software development, said Robert Sammons, head of Northern California research for the broker. Cushman & Wakefield.

"Will the technology headquarters stay in the Bay Area? Absolutely," he said. "Will wealth be spread to other parts of the country? Absolutely."

Even technology companies need to be profitable. Moving operations and administrative staff to other areas can be part of the solution, said Sammons.

LendingClub is a typical example. The company has developed an online model that brings borrowers closer to investors and investors looking to finance their loans, quickly becoming one of the leading financial technology companies. When she sold shares to the public in 2014, her valuation briefly climbed to more than $ 10 billion.

But the following year, its founder and general manager, Renaud Laplanche, resigned following an internal investigation into a failed loan sale that revealed flaws in the company's controls. The stock is down about 80% since the stock offering and the company has not made any annual profit since.

Last year, LendingClub launched a "simplification initiative", streamlining its headquarters to focus on the benefits that really matter to employees, said Anuj Nayar, spokesperson.

The spa was out. The free LaCroix stayed.

Companies have already had to streamline their operations in expensive cities. In the 1980s, financial services companies relocated many back office operations to New York to save money.

In San Francisco, a wave of non-tech companies started cutting jobs two decades ago, said Chris Roeder, international director of real estate broker Jones Lang LaSalle Inc. in the city. As companies mature, they see a natural progression as they begin to understand where they need space and how they can be more effective, he said.

"Our company helps a lot of these companies solve these issues," said Roeder. "It's something everyone is talking about."

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Lily Katz from Bloomberg contributed.