Commercial News » San Francisco Edition | By Michael Gerrity | November 2, 2022 8:45 AM ET
But Remains a Leading Force in the U.S. Office Market in 2022
According to CBRE's annual Tech-30 report, the tech industry's share of U.S. office-leasing activity slipped in the first half of this year to its lowest share in five years.
The decline underscores that the tech industry, which has long delivered an unmatched impact on the US office market, isn't immune to the current economic cycle.
The report, now in its 11th year, measures the industry's impact on office demand and rents in the 30 leading tech markets in the U.S. and Canada, as well as select tech-heavy submarkets.
Even with the decline, the tech industry is still a leading force, accounting for 16 percent of total office leasing activity, tied with two other sectors -- Finance & Insurance and Professional & Business Services -- for the largest share in this year's first half. For tech, that's a decrease from 21 percent share in 2021, the highest of any sector. The last time tech's share was lower than its current level came in 2017, when it was 15.7 percent.
Despite large tech companies' pullback in leasing this year, CBRE's analysis found that, over the past two years, more than two thirds of the top 30 North American tech markets registered office-rent growth. Seven of those increased by double-digit percentages.
In that span, several tech markets registered positive net absorption, meaning companies in those markets moved into more office space than they vacated. Six Tech-30 markets exceeded that threshold: Silicon Valley, Raleigh-Durham, Nashville, Vancouver, Austin and Salt Lake City. So did seven tech submarkets: Nashville's Central Business District, Vancouver's Broadway Corridor, Portland suburb Hillsboro, Raleigh-Durham's RTP/I-40 Corridor, Oakland/East End in Pittsburgh, Salt Lake City's South Valley, and Midtown Atlanta.
At the same time, U.S. tech job growth slowed to a 2.1 percent year-over-year gain in this year's first half from a 4.5 percent pace in last year's second half. Hiring momentum persisted in many markets, including a dozen top U.S. and Canadian tech hubs that registered double-digit percentage gains in tech employment in 2020 and 2021, led by Vancouver, Toronto, Austin, Seattle and Montreal.
"Even amid challenges of the past two years, the tech industry continues to add jobs and lease office space at a strong pace," said Colin Yasukochi, Executive Director of CBRE's Tech Insights Center. "Since early 2020, tech has accounted for roughly one of every three office-using jobs created in the U.S. There is potential for pent-up demand to emerge once companies set their long-term hybrid work practices and economic growth picks up. Venture capital funding is on track for the second highest annual total on record after last year's peak."
Sublease Space Increases
Office space available for sublease in the Tech-30 markets increased 4.9 percent to 142 million sq. ft. in this year's second quarter from a year earlier, the highest total since CBRE started tracking the figures in 2012. Tech companies account for 28 million sq. ft., or approximately 20 percent of the total. Leases on nearly half of that tech-industry sublease space are scheduled to expire by 2025, reverting to the building owners.
Leading tech submarkets, which often are located near universities, often feature rising rents, scant vacancy and high-quality office space. CBRE has found that office rental rates in leading tech submarkets carry a 10.5 percent premium, on average, to rents for their cities as a whole as of this year's second quarter. Those with the largest premiums are East Cambridge in Boston (87 percent), Santa Monica near Los Angeles (59 percent), Philadelphia's University City (56 percent) and Palo Alto in Silicon Valley (50 percent). Tech submarkets also tend to generate some of the strongest rent gains in their cities.
Similarly, several tech submarkets have notched double-digit percentage increases in office rent since 2020.