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High-Tech Engine: Bay Area and Seattle Metros Rank Among Top-25 Best Performing U.S Cities

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By Meghan Hall

Accelerated growth in both the San Francisco Bay Area and Puget Sound regions over the course of the last market cycle has drawn the interest of economists, real estate experts and development professionals alike. Many hope to tap into these gateway markets’ economic potential with the goal of applying them to other, up-and-coming metros around the country. Both regions have been ranked by the Milken Institute — a nonprofit, nonpartisan think tank — as two of the top metropolitan areas in the nation, thanks to tech sectors that continue to lift wages, rent and employment. According to Milken, high-tech industries and knowledge-based economies are continuing to fuel growth in many of the nation’s best performing cities. However, this growth will be curbed unless the nation’s top performing cities strategize to maintain a diverse population that includes people of all job descriptions and income levels.

“Metros will continue to attract higher-wage employment while forcing out people in lower-wage jobs,” explained Jessica Jackson, a senior analyst for regional economics research at the Milken Institute. “Though not directly included in our index, these issues are of concern to the overall economic health of the metro and bring along other issues such as homelessness and infrastructure that require more resources. If solutions are not found, these obstacles can eventually curb economic growth in places like the Bay Area and Seattle.”

Cities in both the Puget Sound and San Francisco Bay Area are some of the top performing in the nation, the report states, thanks to steady job growth. The Bay Area averaged slightly better than the Puget Sound; San Jose-Sunnyvale-Santa Clara metropolitan area ranked the highest out of cities from both regions, claiming the number two spot behind Provo, Utah. San Francisco-Redwood City-South San Francisco, where now more than 180,000 people work in the professional, scientific and services sector, ranked fourth. Oakland-Hayward-Berkeley ranked 14th and Santa Rosa 18th. The report estimates that Oakland-Hayward-Berkeley will add 42,000 jobs in the next three years, allowing it to lock in the 14th spot.

The Seattle-Bellevue-Everett metropolitan area came in at number eight on the list, climbing nine spots from 2017, thanks to a per-capita income increase from $50,392 in 2017 to $72,574 in 2018. Olympia and Tumwater were ranked 19th, where residents with a college or graduate degree accounted for 35 percent of the total population.  

However, the main driver for all of these metros, the report states, is the regions’ booming technology industries and access to healthy research and development sectors. Both the Puget Sound and San Francisco Bay Area are home to major universities such as Stanford, Berkeley and the University of Washington, where large talent pools congregate. Major employers such as Google, Facebook, Amazon and Microsoft continue to expand in these regions thanks to a highly-educated workforce. According to the report, innovation in these regions is high, sustaining economic expansion.

“We saw a trend of knowledge economies excelling [in 2018],” said Jackson.  “As evidenced by Amazon’s HQ2 site selections, an educated workforce is more important than ever. We would expect this trend to continue through the current expansion period.”

However, for both regions, a shortage of both residential and commercial real estate continues to make it difficult for new companies to move in and for existing companies to expand. In Seattle, the vacancy rates and housing inventory are low even compared to national numbers, while in the Bay Area the rapidly rising cost of housing is pushing residents out, resulting in negative net-migration. According to Milken the region, 5,000 more people left the San Francisco Bay Area than arrived.

“This places a limit on future growth and has serious implications for congestion and quality of life in the region if unaddressed,” the report states.

While construction in both regions is robust — Seattle added 31,600 jobs in construction and specialty trade contractors between 2012 and 2016, and the Bay Area has seen the number of residential construction permits jump — it is not enough to keep up with demand. San Francisco, for example, approved a new gross receipts tax on businesses making over $50 million in revenue in November 2018. Revenue from the tax will fund programs for the city’s homeless population. The measure divided companies and city officials alike, with major players such as Salesforce supporting the proposed law, while others, such as Twitter, opposing it. The law could double funding for homeless services, the report states, and it may impact companies’ expansion and location decisions in the future.

“Sustaining growth is difficult,” Jackson said. “It is not a wild assumption that [these regions] will eventually hit a limit to their growth once tech is not the newest creative industry.”