Tech Sector’s Office Footprint Continues to Shrink

Tech has been a good client of commercial real estate, even during current uncertain times. Take Google as an example: closing on a $2.1 billion deal for St. John’s Terminal in New York in April of this year, leasing 300,000 square feet of office in San Francisco in July, and announcing the deal to buy the Thompson Center in Chicago in August.

Now there’s an example of spreading the wealth.

But good times don’t last forever. CBRE’s 11th annual Tech-30 report noted that the wild growth is gone. “U.S. leasing activity by the tech industry has stabilized but remains 35% below pre-pandemic levels,” the report said. “Sublease space across the Tech-30 is elevated at 3.8% of available space. Rents in 23 markets were higher in Q2 2022 than two years ago. Only six Tech-30 markets overall and eight submarkets recorded positive net absorption over the past two years.”

That’s not to knock what the tech sector still does for office space. It’s responsible for 16% of office leasing, tied with both the finance and insurance and the professional and business services sectors.

But while significant, it’s not as big as it used to be. It’s a 21% share decrease from 2021. You’d have to go back to 2017 for a time when tech’s share of office leasing was lower at 15.7%.

And even then, in the last two years, “more than two thirds of the top 30 North American tech markets registered office-rent growth,” said a release. Seven grew by double-digit figures.

Since 2020, tech was responsible for a third of office-using jobs in the US. “There is potential for pent-up demand to emerge once companies set their long-term hybrid work practices and economic growth picks up,” said Colin Yasukochi, executive director of CBRE’s Tech Insights Center. “Venture capital funding is on track for the second highest annual total on record after last year’s peak.”

“In that span, several tech markets registered positive net absorption, meaning companies in those markets moved into more office space than they vacated,” CBRE said. “Six Tech-30 markets exceeded that threshold: Silicon Valley, Raleigh-Durham, Nashville, Vancouver, Austin and Salt Lake City. So did seven tech submarkets: Nashville’s Central Business District, Vancouver’s Broadway Corridor, Portland suburb Hillsboro, Raleigh-Durham’s RTP/I-40 Corridor, Oakland/East End in Pittsburgh, Salt Lake City’s South Valley, and Midtown Atlanta.”