By Meghan Hall
Even during an economic downturn—where a number of major firms have held off on making major real estate decisions—tech companies are leading the way when it comes to office activity. For the ninth consecutive year, the industry led the nation in office leasing, with new deals amounting to 26 million square feet in 2020. According to additional insights provided by CBRE, technology companies accounted for most of the largest U.S. office leases, as opposed to the talk of renewals that has colored major markets such as the San Francisco Bay Area and Seattle.
“The tech industry has been rapidly expanding its real estate footprint for much of the past five years, and many leases signed in that recent timeframe have yet to come up for renewal,” said Todd Husak, managing director of CBRE’s Tech & Media Practice Group. “Therefore, renewals still aren’t as prevalent as new leasing for tech companies.”
Total U.S. office leasing activity fell by 36 percent year-over-year during 2020, and tech leasing was down by 48 percent. Tech’s share of total leasing also declined, from 21 percent to 17 percent; however, given its relatively large share of the market, the tech industry retained its status as the top sector for office leasing, a distinction it has held since 2013.
The San Francisco Bay Area, typically a stalwart for the tech office market, saw about 633,000 square feet of new leases signed, and about 229,000 square feet of renewals. CBRE’s Colin Yasukochi, executive director of the firm’s Tech Insights’ Center, noted that while many technology firms have seen business improvements during the pandemic, companies within the Bay Area were choosing to expand outside of the region—at least in the short-term.
“Tech firms in the Bay Area largely deferred or delayed local leasing decisions last year as offices closed to all but essential personnel, yet demand has already started to rise as companies gain confidence in making real estate decisions,” said Yasukochi. “Technology has been critical to conducting day-to-day business during the pandemic, fueling growth in business and talent for many tech firms. This growth will likely supersede decreased need for space resulting from remote work and more geographically diversified hiring, leading to greater demand for real estate in the Bay Area in the future.”
Perhaps more surprisingly, the Bay Area was usurped by Seattle, which became the premier market for large tech leases over the last year. In 2020, the metro had 14 of the largest 100 leases for a total of 3.4 million square feet. 87.5 percent of leasing deals signed were for new leases. According to CBRE, Seattle has benefited as an expansion market, and because many industries related to tech, including productivity software and e-commerce, are growing there.
“These are two things that are really important in the Seattle market,” said Yasukochi. “In the Bay Area, we also have those sorts of companies, but they did not do as much expansion activity in their home markets.”
Other, emerging markets who have also attracted the attention of growing companies saw their share of large office leases increase, as well. Manhattan, ranked second to Seattle, had eight of the top leases of the year. Its cumulative square footage of those leases came to 1.8 million square feet, and 85.3 percent of leases signed were new. Washington D.C., ranked sixth in 2019, took the third spot due to a 72 percent increase in leasing volume. The metro had 12 of the top 100 leases of the year, also for a total of 1.8 million square feet. 52.7 percent of its leases were new deals. Atlanta, Austin and San Diego broke into the top ten for the first time in 2020.
CBRE is optimistic about the tech industry’s office activity heading into the end of 2021 and beginning of 2022. Some uncertainty will remain until companies can completely open their offices and allow all employees back in. In the meantime, many tech firms will be sorting out just what their future space needs will be. Yasukochi anticipates that towards the end of 2021 and beginning of 2022, tech hiring will again ramp up, prompting the need for more space.
“I see 2021 as somewhat of a transition year, where things will be better in terms of their leasing activity and be better in terms of their employees being able to return to the office,” said Yasukochi. “But 2022 is really when you will see conditions return something considered more normal.”