AI Could Drive Office Leasing Growth for Tech Sector

The tech software and services industry remains the strongest sector for office use despite slowing job growth and space portfolio downsizing. Tech job growth decelerated from 5.4% in 2021 to just 0.3% in 2023 due to layoffs and less hiring, according to a CBRE tech sector report.However, tech jobs have rebounded somewhat this year and growth was at 1% through July. CBRE said this is due to fewer layoffs and signals that the recent cost-cutting cycle has bottomed. Companies are refocusing their business strategy, capital expenditures and new hiring on key growth initiatives including artificial intelligence.AI could lead to a reduction in office jobs that include easily automatable tasks, the report said. Technology research firm Forrester predicted AI could replace 2.4 million jobs by 2030 and change 11.1 million jobs, meaning workers will need to leverage technology rather than compete with it. US tech companies, utilities and others are expected to spend up to $1 trillion on AI technology and infrastructure by 2027.The US tech industry leasing began to rebound in the second quarter of last year, and the sector’s share of overall office leasing rose from 9% at the end of 2022 to 13% by mid-2023, according to the report. Today tech’s share of office leasing has grown to 21%.Driven by the emergence of AI startups that have attracted venture capital funding, San Francisco, Silicon Valley and Boston have been active leasing markets. In San Francisco, for example, more than 25 AI companies were seeking one million square feet of space, as of August 2024.“The technology industry is in the early stages of what could be a large growth cycle driven by AI development and deployment,” said the report. “AI innovation will likely create more jobs than it replaces and increase office space leasing demand in Tech-30 markets.”Toronto posted the largest tech job growth in North America last year with 17,600 new employment opportunities. Nashville, Dallas-Ft. Worth, Indianapolis and Raleigh-Durham followed. Six other markets posted tech job growth rates above the national average, including Charlotte, Silicon Valley and Austin.CBRE noted the office sector is stabilizing in Tech-30 markets. This is due to sublease space abating, leasing activity increasing and AI emerging. The markets best positioned for renewed tech growth are Nashville, Charlotte, Dallas-Ft. Worth, Atlanta and Vancouver. Markets most likely to benefit from AI growth are San Francisco, Boston, Seattle, Toronto and Manhattan, according to the report.