Tech Will Lead the Next Economic Cycle. What Does That Mean for Office Demand?

It’s difficult to imagine how companies would have maintained productivity during the COVID-19 pandemic without the tech sector.

“Some of the tech sectors that rose in importance were e-commerce and logistics, streaming and cloud services, search and social media, devices and communications, and data and cybersecurity,” according to a new report, Tech 30, from CBRE.

Still, when COVID hit, many tech companies put plans on hold and tightened their belts, according to CBRE. Overall, the sector shed 58,000 jobs in 2020 after creating 1.5 million since 2010 and accounting for one of every four new jobs requiring office space. As a result, the tech industry’s share of the office market inched down from 21% to 20%. 

Still, there is a strong case to be made that the tech will lead the next business cycle by accelerating the digital transformation of the economy.

In 13 markets, high tech jobs grew faster in the past two years compared to the two years before, according to CBRE. San Francisco, Indianapolis, Dallas/Ft. Worth, Philadelphia, Baltimore and San Diego grabbed the most momentum.

Tech Submarkets

The top 30 tech office markets saw their average rents flatten, but their top tech submarkets edged higher. 

“Leading tech submarkets often outperform their overall office markets because tenants are willing to pay a premium in areas preferred by tech talent,” according to CBRE. “Many of these submarkets have limited office availability and are near leading universities.”

CBRE thinks that Silicon Valley, Washington, D.C., Vancouver, Atlanta, Dallas/Ft. Worth, Raleigh-Durham and San Diego are most resilient and poised for the most expansion.

Smaller Footprints 

But while these markets are well positioned for long-term growth, one mitigating factor might be a new tendency for some companies to scale back on their office footprint. 

In a survey by Savills North America of several hundred technology office tenants, a staggering majority of firms, 94%, said they expect remote work, at least a few days a week, to be normalized at their company in a post-vaccine environment.

According to the Savills technology practice group’s survey, these shifts are prompting changed expectations on the office footprints of tech firms. 

“Honestly, the majority of our decisions are still in flux,” said a Washington, DC-based survey respondent to Savills. “We love having office space to collaborate; however, our company has been operating wonderfully remote and feel it’s irresponsible to bring people back in given the nature of our work until risk is all but eliminated.”