Tech Company Leasing Expected To Recover This Quarter From 46% Drop
"We see employment growth going forward, especially since demand has increased for many tech services and products during the pandemic. But it will be at a much slower pace than in 2019."
Tech remains the leader of US office leasing, even in a pandemic.
A new report from CBRE reveals that technology companies’ new leases and renewals for US office space declined by nearly half in the second quarter from a year earlier, roughly in line with the drop in overall office leasing in that span. Despite that decline, tech still claims the largest share of office-leasing activity by industry at 20.5% for the quarter.
GlobeSt.com caught up with Colin Yasukochi, executive director of CBRE’s Tech Insights Center, to discuss the slowdown in tech-office leasing and the outlook for more activity ahead.
GlobeSt.com: In many ways, employment in key tech professions has been resilient so far during this recession and pandemic, especially amid strong demand for tech services. But does a 46% decline in tech-office leasing activity in the second quarter bode poorly for tech employment levels?
Yasukochi: Last quarter’s decline in office leasing by tech companies is directly related to government-ordered shelter-in-place restrictions, business uncertainty, and the additional work-from-home flexibility that many tech companies are allowing their employees during the pandemic. That has led to the delay of many real estate leasing commitments until there is more clarity on growth prospects and any fundamental changes in how we use office space going forward.Typically, leases signed to accommodate expansion take into account employment growth more than a year into the future. Many tech companies were very active in leasing in 2019, which indicated pent-up growth. We see employment growth going forward, especially since demand has increased for many tech services and products during the pandemic. But it will be at a much slower pace than in 2019.
GlobeSt.com: What factors led to year-over-year gains in markets like Washington, D.C., Atlanta and San Diego versus declines in other big markets like Manhattan and the Bay Area?
Yasukochi: Tech companies now expanding in growth markets had set their expansion plans in motion prior to the pandemic. They remain confident in their business prospects and the availability of tech talent to hire.
The markets experiencing the largest declines in the second quarter were those in which tech companies have headquarters or main offices, which often entail large campuses and future lease commitments. Therefore, when companies hold off on additional leases in those markets, activity is affected significantly.
GlobeSt.com: Are you seeing tech companies list a lot of space for sublease? Or are they holding back on that so far?
Yasukochi: Yes in some cases, and not yet in others. Some tech companies in the sectors most affected by the pandemic—hospitality, retail, restaurants and transportation—have reduced their employment and put office space on the market for sublease. The market most affected is San Francisco. Other markets are seeing a rise in space offered for sublease. Still, many tech companies are waiting to better understand how overall use of office space and remote work will evolve before they make real-estate decisions.
GlobeSt.com: What do you anticipate for the trajectory of tech-office leasing in the third quarter?
Yasukochi: It likely will rise this quarter, making the second quarter the nadir for 2020. The ongoing recovery in leasing demand may take year or more for enough pent-up demand to build up and return activity to 2019 levels.