Tech Market Resiliency
The markets most likely to weather the economic downturn and bounce back quickly include Silicon Valley, Washington D.C., Vancouver, Atlanta, Dallas, Raleigh-Durham and San Diego.
We've become much more reliant on tech during this pandemic, and it provides critical support in both our work as well as our personal lives. Tech has boosted e-commerce, which bodes well for further growth in the industry.
Tech Submarket Rents
The tech industry follows talent. Right now, as of mid-year, the rent premium in top tech submarkets was about 18% over the overall market on aggregate. Examples include Mountain View in Silicon Valley, the North Loop in Chicago and Midtown South in New York City.
We created the sublease risk radar to understand how the 42% overall increase in sublease space breaks down by market, and the more tech-heavy markets—such as San Francisco, Seattle, and Salt Lake City—fall in our higher-risk quadrant, while other large markets like Los Angeles, D.C., Portland and Philadelphia appear in our lower-risk quadrant. These markets have not all been adding sublease space at different rates, which we are monitoring closely.
Short-term Factors Impacting the Office Market:
- General office absenteeism—companies can't or aren't using their offices in the same way as they did pre-pandemic.
- Leasing volumes are down, and non-renewals of expiring leases are occurring. Some companies are consolidating, while others are managing for the long term—planning to wait and see what happens.
Office Market Outlook
- Jobs follow people, so companies are watching the signals of where and why people are moving. We are finding that the younger generation is far more elastic: a recent poll showed that 3% of Americans have moved as a result of COVID-19, and that number increases to 10% for Americans under 30 years old.
- Workplace won’t be a binary choice. The core office will be the antidote to work from home, when excessive digital work dilutes culture and becomes tiring, yet accelerates employee freedom.
- Work from home or work from anywhere is becoming a talent attracting tool for tech companies. The office will serve as a recruiting magnet that brings talent into a physical workspace. The choice will make the commodity or utility office less valuable.
Urban vs. Suburban Models
- Talent is drawn to opportunity. For a young person, retreating to their parents’ basement does not offer a lot of opportunity. We will have to go through a few university cycles of graduates and pull the young talent back into dense environments.
- Note where the leaders migrate. Younger talent still needs mentoring and proximity to leadership.
- Previous pandemics have not dampened the trajectory of urbanization. The drive to cities makes people more innovative and productive. That said, density and transit are a big problem today in transit-oriented markets.
- As we’re able to congregate again in restaurants, bars, theaters and other venues, there will be a demand to return to cities.
Next 10 Markets Outside the Tech-30:
- The Next 10 tend to be smaller markets that are located near major tech hubs, such as Sacramento, just outside of the Bay Area; Las Vegas, which is not far from Los Angeles; and Waterloo in Canada, just outside of Toronto.
- Many of these smaller locations will benefit from remote work and better opportunities. Whereas previously employees would have to go to a major office location to work, now companies can take advantage of this untapped talent.
We are in a period of prolonged uncertainty and anxiety, so business leaders have started to think and iterate on what drives innovation and adaptations they need to make in the workplace. We are coming through the wait-and-see period, and we’re starting to see more tangible thought exercises and pilot experiments.
COVID-19 is a distributed problem, unlike a hurricane where we can all go to New Orleans, for example, and pitch in and help fix it. Globally, it’s a distributed problem, with different COVID experiences in different countries. Executive leadership has become the ultimate network connectors, listening to the needs of the workforce and providing candor.
Dense cities face particular challenges for employees getting to the office, including public transportation and elevators. Many of the most resilient cities are more suburban markets with easier access to shorter, smaller buildings. This is an evolving trend that we are monitoring, but some of the denser cities may take a longer time to bounce back.
Lisa Picard, Chief Executive Officer & President, EQ Office
Dan Harvey, Vice Chairman, CBRE
Colin Yasukochi, Executive Director, CBRE Tech Insights Center
Lexi Russell, Director, Research & Analysis, CBRE
Todd Husak, Managing Director, CBRE Tech & Media Practice
Expert Roundtable Recording
Tech-30: Measuring the Tech Industry's Impact on U.S. & Canada Office Markets
October 29, 2020