CBRE's Colin Yasukochi says San Francisco is an ideal place to develop and test its market potential.
SAN FRANCISCO—A new CBRE report ranks San Francisco the fastest-growing tech market with overall rent growth of 17.5% between second quarters 2017 and 2019. The company's annual Tech 30 report measures the tech industry's impact on office rents in the 30 leading technology markets in the US and Canada.
"The North American tech industry has diversified its economic base as it has grown, expanding its presence in many Tech 30 markets," said Colin Yasukochi, executive director of research for CBRE's Tech and Media Insights Center and co-author of the report. "Meanwhile, large tech companies have been an ongoing source of demand. The 10 most active tech companies leasing office space since 2013 account for 27% of overall tech-industry leasing."
San Francisco also had the second highest high-tech employment growth rate (behind only Vancouver) with 24.7% during 2017 and 2018, accounting for 84.7% of all new office jobs. Since the current expansion started in 2010, the tech industry in San Francisco has more than quadrupled in size to 100,644 tech jobs as of year-end 2018. This growth has fueled the absorption of 15 million square feet of office space, which reduced the vacancy rate to 3.6% and caused rents to spike by 180% to $86 per square foot annually, the highest in North America.
"Access to the largest and most innovative tech talent labor pool in North America has kept real estate demand high in San Francisco," said Darin Bosch, senior managing director at CBRE. "Tech companies are thriving here even with the competitive labor and real estate markets driving operational costs higher. They see San Francisco as a natural lab and testing ground for new technologies."
Office rent growth has been strong for the Tech 30 in the past two years, with 10 markets posting double-digit percentage growth in average rents during this period. Overall, rents increased in 28 of the Tech 30 markets since 2017.
San Francisco posted a 17.5% two-year office rent growth rate, a 24.7% two-year tech job growth rate and 19,947 two-year tech job gain by volume. This was followed by Silicon Valley at a 15% two-year office rent growth rate, a 14.7% two-year tech job growth rate and 27,720 two-year tech job gain by volume.
"As for the San Francisco findings, many might be surprised to hear about its growth over San Jose," Yasukochi tells GlobeSt.com. "The young, urban and tech-savvy residents of San Francisco who tend to be early adopters are a natural lab and testing ground for new technology products and services. If you are trying get proof of concept for your technology, San Francisco is an ideal place to develop and test its market potential."
Yasukochi says the tech industry within San Francisco has grown 3.5 times faster than Silicon Valley, yet remains half its size. Software and services tech companies in San Francisco have about 101,000 employees compared to 217,000 in Silicon Valley. Rapid job creation in San Francisco has caused office rents to skyrocket, the highest in North America. In terms of number of tech jobs created, Silicon Valley's was the top market and created 106,000 jobs since 2010, he points out.
CBRE's report also examines rent gains, rent premiums and net absorption in submarkets that have emerged as tech hot spots. Nationally leading tech submarkets registered an office rent premium of 14% in comparison with the average in respective cities.
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Lisa Brown
Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.
