Crypto Winter’s Thaw Warms Up Leasing, Sales Activity in Bay Area

It’s not to the moon, by any means, but crypto is showing signs of a real estate rebirth.

While it has been overshadowed and eclipsed by other hype-driven technologies, notably the generative artificial intelligence boom, cryptocurrency is quietly leasing more space on the margins of San Francisco’s office market. JLL (JLL) data has shown a notable uptick among firms and increased quarterly leasing velocity, with 300,000 square feet currently leased in the city as of the second quarter of 2024 and 175,000 square feet of demand. 

“The next wave of whatever crypto is has been finding an epicenter in San Francisco,” said Steven Golubchik, executive vice chairman and president of Western region capital markets for Newmark (NMRK). “If you look at the amount of crypto funds that have recently started up, many of them are based in San Francisco. One of the things the data isn’t showing is there’s a challenge for crypto firms looking for space.” 

This expansion of the geographically distributed industry’s real estate footprint comes at an inflection point for the industry at large and San Francisco’s office market in particular. A prolonged crypto winter in 2022 and 2023 — declining values, rising interest rates, failures and fraud trials for big players like Celsius and FTX — decimated the industry, leading to failed startups, lost jobs and shrinking workplace footprints. 

But this year has seen a turnaround, despite continued market volatility. Positive signs include Securities & Exchange Commission approval of crypto-focused exchange-traded funds, and venture capital firms like Andreessen Horowitz announcing plans to double down on the industry. 

Currently, crypto faces numerous regulatory changes, and more potential shifts after the fall elections, which the industry itself is heavily investing in to mobilize so-called “crypto voters.” And, despite growing demand, a crypto firm still can be a risky tenant: How do landlords value the tenancy of a firm in a famously mercurial industry? 

“Today, there is less fanfare, there’s less hype, there’s less praise around crypto,” said Christopher Okada, president of Okada & Company, a New York-based commercial real estate advisory firm that tracks crypto firms. “The new craze isn’t crypto or Web3, it’s all AI.”

That’s the clear  direction of the San Francisco office market, which remote work and tech layoffs decimated a couple of years ago and to which AI startups now give some hope. AI firms have doubled their footprint in the city since 2000, according to JLL data, approaching 4 million square feet of leases. JLL estimates there’s roughly 1 million square feet of AI-focused office requirement right now, a figure expected to grow due to the city’s centrality in the AI industry and the recent seed and Series A fundraising success of many new companies.

It’s created plenty of positive market signals and additional potential tenants, according to Golubchik. In just the beginning of 2024, sublease space declined for the first time since 2021. Tenant activity in the first months of the year was busier than any time since 2019, before the pandemic, and Golubchik said there are more sub-35,000-square-foot tenants in play than he’s seen in the last five years. 

Against this backdrop, crypto has slowly shown signs of life in the Bay Area, where most of the investors and tech talent that fuel the industry reside. Coinbase leased 40,000 square feet in Mountain View last summer, and two large firms are currently seeking at least 50,000 square feet each, according to Brittan Hawken, a tech industry lead at JLL.

Even with new momentum, crypto presents its own real estate complications. The landlord and lessee in a crypto office transaction both have to navigate risk, said Golubchik. Owners, when evaluating the nature of these tenants, might look to charge substantially higher rent or lower tenant improvement allowances, considering the potentially short-term nature of many crypto enterprises. 

Golubchik recommends crypto firms instead pursue purchasing their own real estate to avoid additional lender oversight on lease approvals, since they already have enough regulatory oversight to manage. (Owning property, too, can be a great hedge against falling cryptocurrency valuations.) He’s currently helping two firms negotiate the purchase of their own spaces, and said Newmark has specifically marketed the One Montgomery building in San Francisco’s Financial District to crypto firms. 

But potential crypto tenants today offer a lot more potential than they did in the past, said Okada. If a crypto firm survived the fiscal cliff the industry fell over in recent years, that’s a vote of confidence.

“Can the entire submarket crumble again?” Okada said. “Yes. But I do think it’s a lot more vetted than it was just a few years ago. If they’re still kicking and moving and shaking, they’re a lot more mature.” 

As crypto recovers and firms seek out space for expansion, San Francisco faces competition from New York City. Many growing firms see the two cities as complementary, and having a base of operations in both the tech center of SF and the financial capital of New York as beneficial. In early 2022, Commercial Observer noted the trend of “crypto bros” seeking expanded workspaces in Manhattan — since then, the crypto winter has wiped out a majority of those firms. Okada, whose firm represents 4.5 million square feet of office, said the massive interest these firms had in leasing in 2021 and 2022 has dropped off. He’s not seeing any uptick in activity.

That’s the contrarian view. Others argue there’s been signs of resurgence, including JLL’s Hawken, who said she’s seeing crypto firms seeking to double or triple their Manhattan footprints. Brandon Charnas, co-founder of Current Real Estate Advisors (and subject of a federal investigation for alleged insider trading), who has represented crypto firms such as Alchemy and Uniswap, told Commercial Observer there’s a nexus of activity around the members-only club Zero Bond in Lower Manhattan. 

“Crypto companies feel New York provides access to investors and allows them to accomplish certain business initiatives that are sometimes more difficult to achieve in other markets,” said Todd Stracci, executive managing director of New York brokerage for JLL. “This may mean some crypto companies want a bicoastal physical presence to get the best of multiple markets. As long as New York is thriving and investors and the talent pool are here, this is one place where offices will be.”

Just as in San Francisco, firms in New York seek offices with top-notch security, due to the nature of the financial transactions and assets at play, as well as trophy-worthy spaces with high-end amenities. Stracci said firms have focused on SoHo, Union Square and the Flatiron District, and on spaces that offer extensive conference rooms, outdoor space and plenty of options for entertaining. There’s a slight divide between new firms seeking plug-and-play flex space, and more mature companies clamoring for custom offices that offer the mantle of a mature tech firm.

Hawken believes there’s a future for the industry, and a resurgent need for office space that will become clearer in 2025 and 2026. With more mainstream financial firms offering crypto options, she sees it as a reason for optimism.

“We went through a bit of a pause and level set,” she said. “Now we’ll see it’s really growth driven.”

Correction: An earlier version of this story misidentified Brittan Hawken of JLL.