Tech Industry Drives Office Leasing Despite Pandemic
Image: Apple Park, Cupertino, Calif. in the Silicon Valley
Tech industry job loss has been minimal during the pandemic, and the tech sector is still driving U.S. office-leasing activity, reported CBRE, Los Angeles.
CBRE said the tech industry’s share of U.S. office-leasing activity inched down only slightly in first-half 2020 to 20 percent from 21 percent last year.
“Few industries, if any, escape a pandemic unscathed, and tech isn’t an exception,” said CBRE Managing Director Todd Husak, who leads CBRE’s Tech & Media Practice. “However, the tech industry and the office markets where they have a significant presence are proving resilient this year. Much of the industry has established its value by providing the tech products and services needed to ensure business productivity and continuity.”
Husak noted several indicators including “robust” venture-capital investment point to more tech-sector growth ahead.
CBRE’s Tech-30 report measures the technology sector’s impact on office demand and rents in the 30 largest tech markets in the U.S. and Canada. The report found pre-pandemic office rents increased in all but one of those markets in the past two years, with five posting double-digit percentage gains. Net absorption registered net gains in 26 markets over those two years.
But COVID-19’s economic challenges has affected the office market, the report said. Tech leasing activity declined by 46 percent in the second quarter from the 2019 average, in line with the 44-percent decline in overall U.S. office-leasing activity. The amount of office space offered for sublease in the Tech-30 markets increased by 42 percent, or roughly 27 million square feet, to a total of 90 million square feet so far this year. Tech companies currently account for a quarter of sublease space.
CBRE identified several Tech-30 markets best positioned for resiliency during the pandemic and growth thereafter based on their concentration of large-cap tech companies, moderate office rents and growing tech labor pools. Those markets include Silicon Valley, Calif., Washington, D.C., Vancouver, B.C., Atlanta, Dallas-Fort Worth, Raleigh-Durham and San Diego.
“Perhaps the most resilient office markets in this downturn are leading tech submarkets, which often are located near universities,” the report said. CBRE found average office lease rates in leading tech submarkets carry an 18 percent premium to average rates for their cities as a whole. Markets with the largest premiums include East Cambridge in Boston (137 percent), Santa Monica in southern California (70 percent) and Palo Alto in Silicon Valley (72 percent).
Tech submarkets also tend to generate some of the strongest rent gains and office-space absorption in their cities.
Of the Tech-30 markets, half registered double-digit percentage gains in job growth for tech software and services jobs in the 2018-2019 timeframe as compared to 2016-2017, CBRE reported. They are led by Vancouver (29.2 percent), San Francisco (26.9 percent), Austin (22.9 percent), Seattle (21.9 percent) and New York (18.4 percent).
“Tech will again lead our economic growth in the years ahead,” said Colin Yasukochi, Executive Director of CBRE’s Tech Insights Center. “The vital role that tech has played in helping society and business adapt and sustain through this pandemic points to an even larger role going forward. The opportunities created by this downturn will spawn many tech startups, just as in previous downturns.”