With more than 219,000 jobs created since 2020, growth in the technology industry has had a major impact on office markets across the U.S. According to CBRE’s Tech-30 report, which analyzes growth among the nation’s top 30 tech markets, the technology sector is continuing to improve, with demand in the sector ultimately aiding many of the West Coast’s office markets, including San Francisco, Seattle and Los Angeles.
“The tech industry has grown during the pandemic as many people and businesses increased their use of online platforms for ecommerce, socialization, entertainment and working from home. After a brief period of uncertainty at the start of the pandemic in early 2020, tech firms resumed the expansion of their workforces to keep pace with increased business,” said Colin Yasukochi, executive director of CBRE’s Tech Insights Center.
According to the report, the tech industry’s share of U.S. office leasing activity climbed to 22 percent this year, compared to 17 percent for all of 2020. This is a 122 percent growth from the first quarter of 2021, resulting in approximately 95 million square feet of space leased during just the second and third quarter of the year. Additionally, employment in technology grew approximately eight percent, with four million people currently employed in the tech industry, a new record.
“The positive trends in the tech industry are beginning to translate into higher demand for office space across the U.S. Our analysis shows the tech industry leading a rebound in U.S. office leasing activity. Over the past two quarters, tech has more than doubled its leasing activity and increased its market share to 22 percent, up from 17 percent in all of 2020. This increased activity has activated many office markets across the U.S., including the San Francisco Bay Area, Seattle, Boston, Los Angeles, Phoenix and Austin,” Yasukochi said.
Overall, the San Francisco Bay Area ranked ninth among the nation’s top tech industries, with office leasing activity increasing 45 percent in San Francisco and Silicon Valley. San Francisco saw a 12.6 percent growth in tech jobs, while Silicon Valley followed closely behind, reporting a 9.4 percent growth in tech employment.
“The pandemic sharply reduced demand for office space, particularly in downtown San Francisco, as tenants pushed off decision making amid uncertainty. Yet tech companies continued to grow. National tech employment is now above pre-pandemic levels, and Bay Area companies are ramping up their office leasing both locally and nationally to accommodate the increase in hiring,” Yasukochi said.
Seattle also performed well, with CBRE ranking it second in terms of largest job growth. The city reported a growth rate of 22 percent, following directly behind Toronto at 26 percent. As of 2020, more than 219,000 of Seattle’s residents are employed in a tech-related job. However, office vacancy in the region remained high at 13 percent.
In Southern California, both Los Angeles and San Diego topped the list, with Los Angeles ranked 18th and San Diego ranked 19th. According to the report, San Diego employs more than 38,000 tech employees and recorded a vacancy rate of 13.5 percent by the third quarter of the year. Los Angeles employs a slightly larger amount of tech employees at 86,607 and a slightly higher vacancy at approximately 17 percent.
“The Puget Sound region was the best performing market in the U.S. with strong tech job growth and office real estate activity. The ecommerce and software productivity sectors of tech benefited significantly from pandemic-induced trends,” Yasukochi said. “Southern California also creates a large number of new college tech degree graduates each year, and it is attractive for tech firms to locate within the region to tap into this talent pool.”
Despite the tech industry leading many markets in office leasing activity, commercial office investors are still facing many challenges. Sublease space continues to increase across the country, with office space listed for sublease by tech companies nearly doubling from the first quarter of 2020 to the third quarter of 2021. Currently, sublease space from tech tenants in the top 30 tech markets totals 134 million square feet, approximately 23 percent of all office space listed for sublease. However, the report shows that the rate of sublease space in the U.S. likely peaked last quarter and will begin to decrease as employment in the tech sector grows.
“Certain tech sectors most impacted by the pandemic – including those whose business operates in transportation, hospitality and retail, and restaurant – reduced headcounts and office space previously needed for future growth. Younger venture-backed startups were also impacted. San Francisco was most impacted by both of these trends and thus saw its sublease space increase dramatically. In the U.S. overall and in San Francisco specifically, the amount of sublease space is declining as tech firms remove it from the market with the intent of re-occupancy, return it to landlords as they expire, or find new tenants to lease the space from them,” Yasukochi said.
Overall, prospects for continued progress in the tech industry remain strong, with CBRE reporting continued job growth on the horizon. As the sector continues to add more employees, further improvements to the office market is also expected, the report shows.
“The tech industry has grown significantly during the pandemic and has largely put new office leasing activity on hold despite adding more than 280,000 jobs. In the second and third quarters of 2021, tech firms began to become much more active in the office leasing market. They believe the office will remain important for their workforces, company culture and innovation,” Yasukochi said. “Once tech employees begin to return to the office more broadly in 2022, there could be an even larger surge in leasing activity, especially if demand from employees to be in the office is greater than expected.”
