Commercial Real Estate News
Fast Growing AI Tech Companies Help Drive U.S. Office Leasing Activity in 2023
According to CBRE's newly released annual Tech-30 report, the tech industry reclaimed the highest share of U.S. office leasing in Q3 2023 after relinquishing the top spot in Q1 2022. Total tech leasing recovered from low levels earlier this year but remains well below pre-pandemic era leasing.
The report, now in its 12th year, measures the tech industry's impact on office demand and rents in the 30 leading tech markets in the U.S. and Canada, as well as select tech-heavy submarkets.
Tech's share of total office leasing activity has increased each quarter this year, even amid reduced U.S. office leasing activity overall. In Q3 2023, the tech industry reclaimed its position as the top sector in office leasing activity after losing its lead in Q1 2022. 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. Tech moved back ahead of the finance and insurance sector, which claimed a 15% share of Q3 office leasing activity.
The report features a new analysis of the correlation between venture capital (VC) funding and leasing activity by AI companies. 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, according to CBRE's analysis of its office leasing and CB Insights data.
Since 2019, AI companies have leased 7.5 million sq. ft. of office space across the top five markets. San Francisco and Silicon Valley were the most active markets for AI leasing by volume, each with over 2 million sq. ft. leased.
"Tech-office leasing has steadily increased this year, but short-term momentum could shift along with the economy. To be sure, long-term growth prospects of the tech industry remain strong with ample capital to fund innovation," said Colin Yasukochi, executive director of CBRE's Tech Insights Center in San Francisco. "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 U.S. tech industry employment remains well above pre-pandemic levels, even though tech software and services employment growth fell to 0.4% in H1 2023 from 3% in H2 2022. September 2023 marked the fewest tech industry layoffs since June 2022, according to CBRE's analysis of data from job search firm Challenger, Gray & Christmas.
New York created the most jobs in the tech sector (28,166) in 2021 and 2022, according to the latest U.S. Bureau of Labor Statistics data, registering a 17.2% growth rate that surpassed the 10.1% national rate. Job growth in 19 markets remained the same or accelerated between 2021 and 2022, including in Austin, Denver, Salt Lake City, Charlotte and New York. Vancouver (26.3%), Austin (26.1%) and Denver (23.7%) had the fastest tech job growth in 2021-2022.
