Intelligent Investment

Tech-30 2023

Measuring the tech industry’s impact on U.S. & Canadian office markets

October 26, 2023 10 Minute Read

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Key Takeaways

Tech-30 explores the tech industry’s impact on office space and ranks the 30 leading tech markets in the U.S. and Canada, as well as 10 up-and-coming tech markets.

  1. How is the tech industry performing and where is it headed?

    1.5M

    547k

    jobs created since 2013

    jobs created since the pandemic's onset

    Tech industry job growth has slowed but not stopped. It remains well above the national average and fewer layoffs may be a precursor to renewed growth.

    Continued venture capital investment and the Nasdaq’s rebound in 2023—along with the rapid advances in AI and other innovations—could potentially catalyze the next tech growth cycle and produce significant economic value, employment and office leasing demand.

  2. Which are the top markets for high-tech job growth?

    Vancouver

    Austin

    Denver

    +26%

    +26%

    +24%

    Vancouver and Austin led North America for high-tech job growth over the past two years (2021 and 2022), followed closely by Denver. Eight other U.S. markets surpassed the 10.1% national growth rate, including Salt Lake City, Charlotte and New York. New York also created the most jobs (+28,166).

  3. Which are the top momentum markets with faster high-tech job growth?

    Nashville

    Salt Lake City

    +11%

    +10%

    San Francisco

    Phoenix

    +8%

    +8%

    Eighteen markets had faster high-tech job growth in the past two years than in the preceding two years, led by Nashville, Salt Lake City, San Francisco and Phoenix. Several major U.S. and Canadian markets did not gain momentum, even though three (Vancouver, Charlotte and Seattle) had double-digit high-tech job growth rates.

  4. How are tech office markets performing?

    Leasing activity slowed, sublease space rose and AI emerged.

    Overall U.S. leasing activity slowed over the past four quarters, with Q2 2023 reaching the lowest level since the pandemic. Tech industry leasing activity also slowed but has started to rebound, rising from 9% (3.9 million sq. ft.) of overall leasing in Q4 2022 to 17% (7.3 million sq. ft.) in Q3 2023. Lower overall leasing contributed to increased sublease space across the Tech-30, accounting for 4.8% of available space in Q2 2023. There are several promising indicators that AI will become a catalyst for the next tech growth cycle.

  5. Which tech markets are most resilient and positioned for renewed growth?

    Vancouver, Boston, Salt Lake City, New York & Charlotte

    These markets have the best combination of future tech demand drivers and office market fundamentals.

  6. How diverse is the tech industry?

    U.S. tech industry diversity by race, ethnicity and sex has improved over the past five years but remains mostly Male (67%), White (56%) and Asian (18%). Females (33%) are underrepresented compared with non-tech office-using industry employment (52%). Hispanics, Blacks and Other races see roughly equal representation within and outside of the U.S. tech industry.

Insights from the Tech-30 Expert Roundtable Event

Panelists from Meta, Agilent Technologies, PGIM Real Estate, Clarion Partners and CBRE explored how trends in the tech sector are impacting office markets, including AI leasing demand, portfolio optimization, hybrid work policies, investor and occupier sentiment toward U.S. and Canadian tech markets, and more.

Speakers:

Christy Hill, Global Head of Asset Management & Sustainability, PGIM Real Estate
Spence Sowa, Managing Director, Clarion Partners
Chris Lunny, Senior Director - Operations, Meta
Mike Viskovich, Vice President, Global Operations - Workplace Services, Agilent Technologies
Colin Yasukochi, Executive Director, CBRE Tech Insights Center
Heejae Park, Sr. Client Strategy Consulting Manager, CBRE

Moderator:

Matt Werner, Global President, Client Care, CBRE

Figure 1: U.S. Workforce by Race/Ethnicity & Sex for Selected Industries, 2021

Note: Office-using industries include information, financial activities and professional & business services (excluding tech occupations within these categories).
Source: U.S. Census, IPUMS and CBRE Research, May 2023.

Market Data

How Is the Tech Industry Performing and Where Is It Headed?

Mass layoffs across major technology companies in 2022 slowed tech industry employment growth, but it remained positive and is showing signs of rebounding. Venture capital funding for and leasing activity by artificial intelligence (AI) companies will boost the long-term growth of Tech-30 markets.

Current U.S. tech industry employment is well above pre-pandemic levels (Figure 2) and it’s been the top growth sector among major U.S. creative industries since 2007. However, tech software and services employment growth decelerated from 3.0% in H2 2022 to 0.4% in H1 2023, both compared with the preceding half year.

Figure 2: U.S. Job Growth for High-Tech & Creative Industries

Source: U.S. Bureau of Labor Statistics, Oxford Economics and CBRE Research, August 2023.

Tech sectors that saw major layoffs, such as software publishing and social networks, were offset by job growth in others, such as computer system design and computing infrastructure providers.

Fewer layoffs may indicate the tech industry’s cost-cutting cycle is bottoming, with potential for growth to resume next year. Job search firm Challenger Gray & Christmas reports that September 2023 marked the fewest tech industry layoff announcements since June 2022, which preceded the rise in major layoffs (Figures 3 and 4).

Tech job postings also rebounded in mid-2023 as many firms refocused business strategy and new hiring on growth initiatives and emerging technologies such as AI.

Job search firm Challenger Gray and Christmas reports that September 2023 marked the fewest tech industry layoff announcements since June 2022, which preceded the rise in major layoffs.

Figure 3: Annual U.S. Layoffs & Tech Industry Share

Source: Challenger, Gray & Christmas, Inc., Sep 2023.

Figure 4: Monthly U.S. Layoffs

Source: Challenger, Gray & Christmas, Inc., Sep 2023.

U.S. tech industry leasing volume has also started to rebound even as overall office leasing declined. Tech’s share of overall office leasing rose from 9% (3.9 million sq. ft.) in Q4 2022 to 17% (7.3 million sq. ft.) in Q3 2023 (Figure 5). Overall office leasing sharply increased in 2021 when return-to-office seemed like the dominant trend. It then declined due to evolving work patterns and macroeconomic headwinds. However, building security company Kastle Systems reported average office occupancy in August, relative to pre-pandemic levels, increased by five percentage points between 2022 (43%) and 2023 (48%) — a positive indicator.

Figure 5: U.S. Office Leasing Activity & Tech Industry Share

Source: CBRE Research and CBRE Tech Insights Center, Q3 2023.

The tech industry’s near-term rebound should bolster Tech-30 office markets. Some markets and submarkets have performed better than others and benefitted from the flight to quality and more vibrant mixed-use submarkets, including Nashville’s Central Business District, Vancouver’s Broadway Corridor and Atlanta’s Midtown.

The long-term growth prospects of the technology industry and, therefore, the Tech-30 markets, remains strong as global economies digitally transform. Innovations such as AI will catalyze the next tech growth cycle, producing significant economic value, employment and office leasing demand. Venture capital funding for U.S. AI companies totaled $110 billion since 2019. AI’s share of total funding increased from 17% in H1 2019 to 25% in H1 2023 (Figure 6). The San Francisco Bay Area was the dominant region for AI funding, receiving 55% of the U.S. total since 2019, followed by New York, Boston and Los Angeles. (Figure 7).

Figure 6: U.S. Venture Capital Funding & Artificial Intelligence Share

Source: CB Insights and CBRE Research, July 2023.

Figure 7: AI VC Funding by Metro Area and Year

Source: CB Insights and CBRE Research, July 2023.

AI companies have grown across the top five VC funding markets (San Francisco, Silicon Valley, New York, Boston and Los Angeles/Orange County), with 7.5 million sq. ft. leased across more than 300 deals since 2019. Silicon Valley and San Francisco were the most active markets for AI leasing by volume, each with over 2 million sq. ft. leased. The 10 largest AI companies in the market for space in San Francisco as of September 2023 are collectively seeking almost 700,000 sq. ft., which would more than triple their current footprint.

AI innovation’s impact on business growth could be at the scale of the mobile internet and smart phones over 15 years ago. The ensuing demand for real estate will significantly benefit Tech-30 markets.

Which Are the Top Markets for High-Tech Job Growth?

The Tech-30 comprises the tech markets in the U.S. and Canada with the most growth over the past decade, fueled by rapid innovation that drives productivity and advances digital lifestyles.

High-tech software and services job growth patterns continue to change with remote work and migration trends. High-tech employment grew 10.1% in the U.S. and 15.7% in Canada in 2020 and 2021. Collectively, Tech-30 markets’ two-year (2020 and 2021) high-tech employment grew by 9.1% (Figure 8). Eleven of them exceeded the national high-tech job growth rate average, including Austin, Denver and Salt Lake City. Vancouver was the only Canadian market to exceed the national high-tech job growth rate average. Sixteen other markets in the U.S. and two in Canada did not exceed their national averages, including Silicon Valley, Boston and Washington, D.C. Employment growth decelerated from 3.0% in H2 2022 to 0.4% in H1 2023, both compared with the preceding half year.

These growth patterns showed a broader geographical distribution of job creation beyond traditional tech strongholds. Tight labor market conditions and the pandemic both contributed to employers becoming more flexible on where employees can work, which will have future implications for these office markets.

Vancouver and Austin had the highest high-tech job growth over the prior two years (2021 and 2022) at 26.3% and 26.1%, respectively. New York created the most jobs (28,166) (Figure 8). Job growth in nineteen markets either remained the same or accelerated, including in Nashville, Salt Lake City, San Francisco, Phoenix, Denver and Portland. Most of the 11 other markets still saw strong high-tech job growth, albeit less than in the prior period.

Figure 8: High-Tech Software/Services Job & Office Rent Growth, Past Two Years

Source: U.S. Bureau of Labor Statistics, Statistics Canada, CBRE Research, Q2 2023.

High-tech job growth is strongly correlated with office rent growth in Tech-30 markets. Austin and Vancouver posted rent growth of 12% or more between Q2 2021 and Q2 2023. Baltimore, Chicago, Seattle, Montreal, Raleigh-Durham, Nashville and Pittsburgh saw high single-digit growth (Figure 9.1).

Figure 9.1: Rent Growth Overall Market Q2 2021 vs. Q2 2023

Source: CBRE Research, Q2 2023.

Office rents also increased by 12% or more in seven primary tech submarkets between Q2 2021 and Q2 2023, led by increases of 21% in Downtown West in Toronto and 17% in the River North in Chicago (Figure 9.2). The top markets for net absorption during this period were Nashville, Austin and Vancouver (Figure 9.3). The top submarkets for net absorption were Nashville’s CBD, Vancouver’s Broadway Corridor and Atlanta’s Midtown (Figure 9.4).

Figure 9.2: Rent Growth Top Tech Submarket Q2 2021 vs. Q2 2023

Source: CBRE Research, Q2 2023.

The top markets for net absorption growth between Q3 2021 and Q2 2023 were Nashville, Austin and Vancouver (Figure 9.3). The top submarkets for net absorption were Nashville’s CBD, Vancouver’s Broadway Corridor and Atlanta’s Midtown (Figure 9.4).

Figure 9.3: Net Absorption Growth Overall Market Q3 2021 vs. Q2 2023 (% of total building inventory)

Source: CBRE Research, Q2 2023.

Figure 9.4: Net Absorption Growth Top Tech Submarket Q3 2021 vs. Q2 2023 (% of total building inventory)

Source: CBRE Research, Q2 2023.

Tech Submarkets Outperform

Leading tech submarkets often outperform their overall office markets because many tenants are willing to pay a premium in vibrant and centrally located areas preferred by tech employees. Many of these submarkets have limited office availability and are near leading universities. The top tech submarkets with the lowest vacancy rates as of Q2 2023 were Vancouver’s Broadway Corridor (6.2%), Baltimore’s BWI (10.3%), Boston’s East Cambridge (10.9%), South Orange County (11.9%) and San Diego’s Sorrento Mesa (12.2%).

The tech industry’s prominence in these submarkets continues to pressure rents upward, despite lower leasing activity (Figure 10). Average rental rates for top tech submarkets have remained higher than their overall markets since 2011. They have a 10.2% premium, as of Q2 2023, despite a dip in top tech submarket rents during the pandemic. Rents in some top tech submarkets are significantly higher, such as Boston’s East Cambridge (107%), Silicon Valley’s Palo Alto (57%), Santa Monica (52%), Pittsburgh’s Oakland/East End (52%) and Philadelphia’s University City (47%). Several tech submarkets have rent discounts, such as Portland’s Hillsboro (-23%), Northeast Charlotte (-20%), Washington, D.C.’s Reston/Herndon (-17%) and St. Louis’s CBD (-17%).

Figure 10: Tech-30 Markets & Submarkets Aggregate Annual Average Asking Rent

Source: CBRE Research, Q2 2023.

Increased Sublease Supply Remains a Market Risk

The tech industry has leased the most U.S. and Canada office space of any industry since 2010. Tech’s share of total office leasing activity by square footage rose from 12% in 2010 to 21% in 2019. The pandemic reduced tech's share to 17% in 2020. However, due to economic conditions, it has been trending up and down, with the past two quarters showing a significant rise.

Growth and occupancy dynamics have evolved since the start of the pandemic, causing many office space occupiers to reassess their portfolio needs. Some companies have reduced their office footprints by subleasing space or not fully renewing leases. While these cost-cutting measures were not isolated to the tech industry, they were more pronounced in certain tech-oriented markets where high levels of pre-pandemic leasing activity occurred.

Available sublease space in Tech-30 markets started to rise rapidly in 2020 amid reduced tenant demand. Surplus office space has more than doubled since Q4 2019 and reached a new high-water mark of 166 million sq. ft. in Q2 2023 (Figure 11). The rise in available sublease space varied considerably by market and was directly associated with remote and hybrid work policies, economic uncertainty, layoffs and the concentration of tech companies.

Figure 11: Tech-30 Aggregate Available Sublease Office Space

Source: Costar, CBRE Research, August 2023.

Tech companies currently account for 25% of available sublease space across Tech-30 markets, up from 20% in 2022. Potential risk in these markets stems from tech and other companies further downsizing due to permanent shifts to remote and hybrid working and more sublease space expiring and returning to landlords.

Sublease concentration and saturation are key variables that influence the potential risk sublease availability poses to office market fundamentals. The “Sublease Risk Radar” (Figure 12) plots sublease space growth and tech concentration against the saturation of sublease availability. The overall risk across Tech-30 markets is medium to high, with a 4.8% sublease availability rate of total inventory. Markets with a high concentration of tech, rising sublease space inventory and a high sublease availability rate (upper-right quadrant of the radar) have a medium to high level of risk that sublease space will further weaken market fundamentals.

Figure 12: Sublease Risk Radar - Tech Office Markets

Image of data table

Note: Sublease Risk Radar measures the relative risk of tech sublease dispositions across top markets with available data. Sublease Growth/Tech Concentration is a function of sublease inventory growth over the past year and the concentration of disposed tech subleases during Q2 2023. Sublease Availability is the portion of the total market inventory available for sublease. The quadrant lines represent the aggregate average for each measure.
Source: CBRE Research, Q2 2023.

San Francisco is at the highest position on the risk spectrum, with an 11.5% sublease availability rate. Silicon Valley remains the market with the highest growth and concentration of sublease availability from tech companies, followed by Seattle, Austin and Boston. Other markets with higher-than-average risk—those with above-average growth in the amount of sublease availability over the past year—include Portland and Phoenix.

Market Cycle Positioning

Real estate cycles influence investment and occupancy decisions. Markets generally move across four cycle phases at varying degrees, with some remaining in one cyclical phase for an extended period. Most Tech-30 markets remained in the contraction phase of the office market cycle in Q2 2023, characterized by weakened demand, rising supply and falling rents (Figure 13). Some markets did not contract significantly, while others entered the stabilization phases, including Denver, Nashville, Pittsburgh and Salt Lake City.

Figure 13: Tech-30 Office Market Cycle

Source: CBRE Research, Q2 2023.

Most Tech-30 markets remained in the contraction phase of the office market cycle in Q2 2023 and could stabilize over the next 12 months, characterized by increasing demand and modest changes in supply and rents.

Tech Industry Indicators

CBRE finds that financial market trends are the most accurate indicators of the tech industry’s growth prospects and monitoring them can provide clues as to the future direction of real estate demand.

Capital availability has been a harbinger of growth for the tech industry. Venture capital funding is a key indicator of business viability at a tech company’s early growth stages. Therefore, capital flows into venture funds and venture-backed companies have heavily fueled private tech companies’ business and employment growth.

Venture capital funding in the U.S. has significantly grown since 2010, according to CB Insights, but has declined since 2021 (Figure 14). It surged during the pandemic for companies that maintained long-term growth prospects and benefited from digital trends such as remote work and e-commerce. This led to record-high funding of $276 billion in 2021. Funding dipped to $176 billion in 2022. It is pacing to total $110 billion in 2023, which is not too far below the $123 billion average between 2018-2020.

Figure 14: U.S. Venture Capital Funding

Source: CB Insights and CBRE Research, August 2023.

The Nasdaq Index has become a reliable indicator of business and employment activity since it is comprised heavily of tech companies. Analysis of high-tech employment patterns suggests the Nasdaq Index acts as a 12-month leading indicator of employment levels at a 93% correlation (Figure 15). The Nasdaq’s extraordinary rise after its low in March 2020 was based on tech companies’ future earnings potential and pandemic-related growth. By 2022, these growth prospects dimmed and the Nasdaq significantly sold off. The Nasdaq has rebounded in H1 2023 along with investor optimism for the tech industry. New technologies and areas of interest such as AI and environmental sustainability offer significant long-term growth potential for the high-tech industry.

Figure 15: Nasdaq vs. Tech Employment

Image of line graph

Source: Nasdaq, U.S. Bureau of Labor Statistics and CBRE Research, August 2023.

Image of office buildings

The Shiller S&P 500 Cyclically Adjusted Price-to-Earnings Ratio (CAPE) measures the broader equity market and is an important metric for gauging the financing environment and an economy’s overall health (Figure 16). Historically, an above-average ratio has preceded significant financial market corrections. The CAPE ratio decreased by 18% over the past two years (September 2021 to September 2023), as the market has started to rebalance.

Figure 16: Shiller S&P 500 Cyclically Adjusted Price-to-Earnings Ratio (CAPE RATIO)

Source: Shiller PE Ratio, September 2023.

Prospects for tech companies remain strong as technological advancements grow amid changing global economic landscapes.

Persistently high interest rates remain a challenge to accelerating economic growth. However, there are promising tech sectors that will continue to grow. In particular, AI has significant potential for real estate and capital investment and is expected to benefit many of the Tech-30 markets in the years ahead.

Image of city skyline

Next 10 Markets To Watch

Figure 17: The Next 10 Tech Markets to Watch

Notes: *Waterloo, Ottawa and Calgary rents in C$.
Bubble size is based on concentration of office employment.
Source: U.S. Bureau of Labor Statistics, Statistics Canada, CBRE Research, Q2 2023.

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