AI Boosts Tech Industry Office Occupancy Rates

Add “boost office occupancy” to the list of how artificial intelligence is benefiting the business world.

A report this week from CBRE about the correlation between venture capital funding and leasing activity by AI companies showed that the top five U.S. markets to receive VC funding across all sectors between H1 2019 and H1 2023 (San Francisco, Silicon Valley, New York, Boston and Los Angeles/Orange County) also have the highest amount of office leasing activity by AI companies in that timeframe.

Furthermore, the tech industry reclaimed the highest share of US office leasing in Q3 2023 after relinquishing the top spot in Q1 2022, the report, which used CB Insights data, showed.

Total tech leasing recovered from low levels earlier this year but remains well below pre-pandemic era leasing, according to CBRE’s annual Tech-30 report.

“Tech-office leasing has steadily increased this year, but short-term momentum could shift along with the economy,” Colin Yasukochi, executive director of CBRE’s Tech Insights Center in San Francisco, said in prepared remarks.

“To be sure, long-term growth prospects of the tech industry remain strong with ample capital to fund innovation. Investment in emerging technologies like artificial intelligence can produce significant economic value, employment, and office space demand.

“The impact of AI on business growth has the potential to reach the same scale as the mobile internet, which would result in significant demand in the Tech-30 markets.”

Total office leasing activity has increased each quarter this year for tech firms, even amid reduced U.S. office leasing activity overall.

Tech’s share of office leasing was 16.5% (7.3 million sq. ft.) in Q3 2023, up from a 10-year low of 9.3% (3.9 million sq. ft.) in Q4 2022. A plummet in the number of tech layoffs in September helped matters as last month was the lowest number recorded since June 2022, according to CBRE’s analysis of data from job search firm Challenger, Gray & Christmas.

The finance and insurance sector held the top spot, but in Q3, moved to second with a 15% share of office leasing activity.

Tech submarkets located near universities or major tech employers performed well in Q3 with CBRE reporting that office rental rates there carried a 10.2% premium in Q2 2023, compared with rents for their cities as a whole.

Leading the way were Boston’s East Cambridge (107%), Silicon Valley’s Palo Alto (57%), Pittsburgh’s Oakland/East End (52%), Santa Monica (52%) and Philadelphia’s University City (47%).