Commercial Real Estate News
Tech Accounts for 22 Percent of Office Leasing Activity in North America
Up from 17 percent share in 2020
Based on CBRE's latest annual Tech-30 Report, the tech industry led a rebound in U.S. office-leasing activity in 2021, fueled by increased hiring and demand for tech products and services. Tech companies claimed a 22 percent share of U.S. office-leasing activity in the second and third quarters combined, up from 17 percent for all of 2020.
This year, tech companies' office leasing activity increased by 122 percent on average in the second and third quarters, compared to the first. In addition, more than two thirds of the top 30 North American tech markets registered office-rent growth from the second quarter of 2019.
Over this two-year period, four markets posted double-digit percentage gains in office rents: Seattle, Charlotte, Vancouver and Austin. Separately, six markets posted gains in net absorption - the net amount of office space newly occupied or vacated - since mid-2019. Those are Charlotte, Raleigh-Durham, Nashville, Salt Lake City, Indianapolis and Phoenix.
The gains in tech's office leasing underscore the industry's resilience during the pandemic. U.S. tech employment now exceeds its pre-crisis level by 3.3 percent, surpassed only by the life sciences industry (6.9 percent). The tech industry expanded by 219,000 jobs in the U.S. since May 2020. The top Tech-30 markets for tech-job growth in 2019 to 2020 are Toronto (a gain of 26 percent), Seattle (22 percent), Vancouver (21 percent), New York (18 percent) and Austin (16 percent).
"Over the past year, the tech industry has proven to be a resilient industry that grew throughout the pandemic," said Colin Yasukochi, Executive Director of CBRE's Tech Insights Center. "Many tech companies are, like other industries, embracing hybrid work formats to provide their employees flexibility. But the industry also values the collaborative environment of the physical office and its role in bringing employees together to foster innovation."
Sublease Situation
Yet the tech industry still poses a challenge for office markets in one regard: sublease space. Office space listed for sublease by tech companies in the Tech-30 markets nearly doubled from last year's first quarter to this year's third, now totaling 134 million sq. ft. Tech companies currently account for 23 percent of all office space listed for sublease in those markets, up from 14 percent in 2019. Still, indicators of leasing activity show that the U.S. total of sublease space likely peaked last quarter.
Submarkets Shining
Among the most resilient office markets in this downturn are leading tech submarkets, which often are located near universities. CBRE has found that office lease rates in leading tech submarkets carry a 25 percent premium, on average, to rates for their cities as a whole. Those with the largest premiums are East Cambridge in Boston (114 percent), Palo Alto in Silicon Valley (66 percent) and Santa Monica in Southern California (63 percent). Tech submarkets also tend to generate some of the strongest rent gains and office-space absorption in their cities.
