Silicon Valley boom spills into Oakland

Source: CNBC

Just a few years ago, the idea of a start-up moving to Oakland, California, would have seemed far-fetched given the high rate of crime in the community, but that's quickly changing.

The real estate market is so red-hot in San Francisco right now that it's motivating start-ups to move into neighboring Oakland. The difference in office rent is dramatic.

Today, in downtown Oakland, the average asking rent is $34 per square foot, according to Amber Schiada, director of research at Jones Lang LaSalle, a real estate services company. In downtown San Francisco? It's $65.

Property managers in the Bay Area say that sharp difference is encouraging entrepreneurs to consider Oakland as their headquarters.

"Cost is an advantage," said Michelle Lane, a commercial property manager with CBRE. "We're less expensive here in Oakland."

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"We have a lot of open space, and I think the new start-ups tend to like that," Lane said.

Those working in start-ups in Oakland say there's another attraction the city offers them: a sense of camaraderie.

"You get a tightknit community so we have parties here on our patio for the local start-up scene," said Paul Patterson, vice president of sales at Captricity, which digitizes paperwork for customers ranging from the FDA to New York Life.

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"The mayor is very supportive of Oakland start-ups, and you even have bigger companies like Ask.com and Pandora, which is right next door."

And, where start-ups go, venture investors follow. Venture capitalists invested $1.2 billion into nearly 100 companies in Oakland last year, according to a Moneytree report.

That made Oakland the seventh most popular spot in the nation for VC investment, right behind Seattle and ahead of Chicago.

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Still, Oakland faces real challenges before it becomes the next tech hub. The most glaring problem? Crime.

Oakland has the highest robbery rate in the state of California, according to the latest available data from the FBI. So, no surprise, the pool of tech companies in Oakland remains relatively small.

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But economists think the number of start-ups coming to Oakland will accelerate as entrepreneurs take advantage of cheaper office space in the community.

"There will be start-ups moving to Oakland, especially the ones needing more real estate," said Enrico Moretti, a professor of economics at the University of California, Berkeley. "Oakland could offer some start-ups a better match."