Tech Industry Continues To Drive Bay Area Office Demand
In the Bay Area, tech remains king for driving everything from large office demand to flexible office space to even how offices are designed for companies outside of the tech industry.
With tech office space in the region more than doubling in the past decade, the Bay Area has the largest tech cluster in the nation and continues to pull in talent, companies and $48B, or 41%, of the nation's venture capital funding in 2018, according to CBRE's recent Techbook report.
The tech industry now occupies 200M SF of office and research and development space in the region, which is home to 4,580 tech firms. Since 2009, the area has added 190,000 tech jobs. A large chunk of that space remains dominated by the largest tech companies. The five largest tech companies in the Bay Area occupy 50M SF of office and R&D space in the region, according to the report.
Startups have been adding space in the region and tech companies headquartered elsewhere have been adding space locally (occupying around 44M SF).
With such growth comes headaches. The Bay Area has not been able to keep up with office demand. In San Francisco, office rents have risen 153% since 2009, doubled in Silicon Valley and increased 68% in Oakland and the East Bay, CBRE reports. Such growth has also created an unmet demand for housing and strained transportation.
Since 2012, 35M SF of new office has been built in the Bay Area, accounting for 14% of total office inventory, according to the report. Of the 4.6M SF of new construction now in the pipeline to deliver between 2018 and 2021, 74% is already spoken for — mostly by tech companies.
“In the year ahead, the region will continue to see high tech job growth well above the national average, though growth will be slower than in previous years due to the Bay Area’s tight labor market conditions,” CBRE Director of Research and Analysis Colin Yasukochi said in a release. “New revenue and jobs will be supported by steady consumer demand, the creation of new market opportunities via disruptive new technologies as well as a growing number of non-tech firms integrating technology into their business models. Commercial real estate investors should benefit from these trends that have given the tech industry greater stability and a wide economic base compared to previous economic cycles.”
Silicon Valley remains the heart of the regional tech hub, with 140M SF, or 70% of the region's occupied tech space, CBRE reports. Silicon Valley has more than four times the tech occupancy of San Francisco and three times that of the rest of the Bay Area's markets combined.
But San Francisco continues to gain a foothold in its importance to tech firms, and has the region's highest concentration of unicorns. The city is the fastest-growing market in the Bay Area, primarily drawing in startups and young tech firms in software and other services (Silicon Valley remains dominated by older hardware companies and large, well-established tech firms). San Francisco has added 8.6M SF to its tech footprint since 2015.
“The startup culture is most prevalent in San Francisco, which is why the city boasts the most unicorns and young tech firms of all the Bay Area markets,” Yasukochi said. “In the current tech cycle, the startup community has shifted from Palo Alto to San Francisco.”