People use the phrase "Silicon Valley" as a shorthand for the technology industry, much as they use "Wall Street" to describe the financial industry.
But much like "Wall Street," the term has become increasingly inaccurate. It's still true that the San Francisco Bay Area is the center of the technology sector. But within the Bay Area, the industry's center of mass has been shifting steadily northward, away from towns like Palo Alto and Mountain View toward San Francisco itself. Yelp, Dropbox, Airbnb, Slack, and Twitter all have their corporate headquarters in or near San Francisco's Soma neighborhood:
On Wednesday, a major tech company announced plans to move some of its workers even farther from Silicon Valley. Uber is opening new offices in Oakland, on the other side of the San Francisco Bay — while simultaneously keeping offices in San Francisco.
Uber is hardly the first technology company to locate in Oakland — Ask.com has had a major presence there for a while — but Uber is the most prominent technology company to establish a major presence on the east side of the bay. And there's good reason to think it won't be the last.
Two big forces have been pushing technology companies up the San Francisco peninsula. One is a serious space shortage. Strict building regulations in all the major Silicon Valley municipalities has made it impossible for the high-tech economy to continue expanding in Silicon Valley proper. As Google, Facebook, Apple, and other companies have grabbed every available square foot of office space they could find, it became unaffordable for new companies to continue taking root there.
Second, San Francisco has been enjoying the same kind of urban revival we've seen in other cities across the United States. So over the past decade, founders looking for alternatives to Silicon Valley proper have generally looked toward San Francisco. The city's Soma neighborhood happens to be the terminus of the CalTrain that connects Silicon Valley to San Francisco.
The problem is that San Francisco isn't very friendly to the development of office space, either. You might think the city could make room for a lot of additional companies by building more skyscrapers downtown, but a 1986 law caps the number of square feet of office space that gets built in the city each year. So now that San Francisco has become a thriving center of the technology sector, companies there are once again facing space shortages.
So companies are looking to move to Oakland, repeating the cycle.
Yet despite San Francisco's business-hostile climate, the city is likely to remain the center of region's (and probably the world's) technology sector in the long run. The region's transportation infrastructure is oriented around carrying people to and from the city — not Oakland or Cupertino — so companies located downtown are always going to have some inherent advantages. And while Oakland real estate is comparatively cheap now, that advantage is likely to dissipate if more technology companies move to the East Bay.
Still, San Francisco is leaving a lot of money on the table by making it so difficult for technology companies to bring jobs and tax dollars into the city.