The technology industry accounted for over a fifth of major leasing activity nationwide in 2019, making it the biggest driver of the office market in the U.S. In hubs of tech talent, that activity drove office and apartment rents up and vacancies down and caused landlords to reimagine their entire portfolios to cater to the industry. But then came the big remote work experiment.
With many large and small tech companies open to long-term remote work (partial and full-time) for their employees, questions are being asked about how that will impact the office and residential markets in hubs of tech talent. A good starting point would be to understand the current state of play – what kind of numbers does tech drive?
A new report provides some answers. Office leases are the second-biggest cost for typical tech firms, according to an analysis of the 50 top tech markets in U.S. and Canada from CBRE. In New York, office rents amounted to 11 percent of total annual costs for tech companies, the highest in the nation.
The tech industry, which CBRE took to be about 6.3 million employees across 50 U.S. and Canadian markets, signed 22 percent of major leases – defined as 10,000 square feet or more – nationwide in 2019, up from 11 percent in 2011, according to the report. That was the biggest growth in office leasing of any industry over the past decade, and that growth has led to consistent annual gains in office rental costs.
Most growth was concentrated in cities with highly educated and young residents, such as Seattle, San Francisco and New York City. In Seattle, more than two-thirds of residents aged 25 and above have college degrees, according to the report. Companies headquartered there include e-commerce behemoth Amazon and online real estate brokerage Redfin. Tech degree completions in 2018 were highest in New York City, where Google, Facebook and Twitter have all committed to major chunks of office space. (Google is keeping its employees home until at least next summer, while both Facebook and Twitter have declared that they will embrace remote work at scale).
With top-tier talent in these cities comes top-tier costs. The CBRE analysis found that a combination of tech worker wages and pricey office rents made the San Francisco Bay Area the most expensive market for tech firms in 2020, with total real estate and labor costs for the typical 500-person tech company using 75,000 square feet of office space hitting $62 million annually. New York City came in at $53 million annually, while Los Angeles was at $46 million.
This tech influx has warped the residential markets in these cities. In San Francisco, monthly apartment rents have increased 15 percent in the last five years, according to CBRE. In Los Angeles, where a bevy of major tech players have more recently set up camp, that figure is 21 percent.
Even with the industry’s relatively high salaries, the average tech worker remains rent-burdened. The average New York tech worker, for example, spends 44 percent of her annual income on housing, blowing past the 30 percent federal benchmark for housing affordability. In Los Angeles, the average tech worker spends 27 percent of her annual income on housing, while in San Francisco it’s 25 percent.
The CBRE report notes that the rise of remote work could lead to a further distribution of tech talent across North America, allowing some cheaper locales such as Waterloo in Ontario, Canada and Dayton, Ohio to compete for talent. Tech companies are increasingly eyeing emerging talent hubs in Latin America as well, such Sao Paulo, Brazil and Bogota, Colombia as well.