The Tech Engine Continues to Churn Out More Office Demand
Overall, 2018 was the cycle’s best year with 52.2 million square feet of gross leasing across all industries, while 2011 was the second best at 45.3 million square feet, according to a report by Cushman & Wakefield.
SAN JOSE—If there was any wonder as to what has driven commercial and economic growth in the Bay Area during the last decade, a look at office gross leasing stats should make it perfectly clear. Not surprisingly, it is the tech industry.
But what may be surprising is that the tech world has leased more office space than all the other major industry sectors combined from the beginning of 2011 through midyear 2019, totaling 177 million square feet versus 170 million square feet. For purposes of this exercise, Cushman & Wakefield reviewed gross office leasing activity (both new deals and renewals) throughout the Bay Area including the counties of San Francisco, San Mateo, Santa Clara, Alameda, Contra Costa, Marin and Sonoma.
Tech has led the march every year and often by a substantial margin, with at least twice the amount of leasing activity than the next highest group, professional services, in every year since 2014. Notably, there has been some ebb and flow during the period though, with total tech leasing slowing down in 2016 and 2017 to slightly more than 16 million square feet per year compared to more than 22 million square feet per year in 2013 and 2014, says the Cushman & Wakefield report.
However, all of those years pale in comparison to 2018‘s blockbuster year with nearly 32 million square feet in tech leasing activity. Professional services picked up in 2018 from recent years to 8.7 million square feet, however was down considerably from this cycle’s highest level of 13 million square feet in 2011. Beyond tech, another sector that managed a big uptick was life sciences with 4.5 million square feet of leasing in 2018, almost double the 2017 figure.
“Overall, 2018 was this cycle’s best year with 52.2 million square feet of gross leasing across all industries, while 2011 was the second best at 45.3 million square feet,” Robert Sammons, Cushman & Wakefield Northern California research director, tells GlobeSt.com. “Each of these years may also be among if not the highest years ever on record, though we cannot say definitively.”
So what does 2019 look like thus far? It is safe to say it will be impossible to beat 2018 with tech currently at slightly more than 12 million square feet in leasing, professional services at 2.8 million square feet and life sciences at 1.4 million square feet. If the market stays on the same trajectory, it should be near the average during this period, which is 38.6 million square feet, according to the report.
Another interesting element is how San Jose fits into the tech equation. Despite being the headquarters location to many tech household names including PayPal, eBay and Adobe, San Jose is more of a bedroom community than a jobs center. Why is that? This is due to more than half of employed residents leaving San Jose for tech-centric cities such as Mountain View and Palo Alto.
And, the region’s three largest tech companies, Apple, Facebook and Google have headquarters elsewhere. Moreover, the next wave of tech companies including Twitter, Uber and Airbnb chose San Francisco for headquarter locations.