Tech has taken over commercial real estate

If it seems like every other office is occupied by a tech company, or that every other block downtown seems to have a new tech incubator, it’s not a coincidence.

A new report released today by Cushman & Wakefield, Tech Cities 2.0, shows how the tech industry dominates the commercial real estate market. Since the beginning of 2017, tech companies have accounted for 42 percent of the square footage in the top 100 leases in North America, according to the report. That’s double the percentage taken by the financial industry.

More importantly, the analysis suggests that tech has been a key driver in the rise in office rents. In the top 25 tech cities, as defined by the report, the cost-per-square foot for office space has risen 59 percent between 2000 and 2018, from an average of $199 per square foot to $316. That’s much slower than the country at large, which only rose 26 percent during the same period, from $197 to $248. In addition, 15 of the top 20 markets for new construction are tech markets, suggesting some relationship between industry demand and new office space.

It’s not unexpected, considering tech’s dominance of the overall economy. Both Amazon and Apple’s valuations recently surpassed the trillion dollar mark, the tech-heavy NASDAQ just topped 8,000 for the first time last month, and seven of the globe’s 10 largest companies are tech firms. Tech employment has also outperformed the economy at large. Tech added 1.1 million jobs since 2010, an 18.6 percent increase, versus the 14.1 percent jump in the economy at large. Those new workers need new office space.

But the significant premium for office rent in tech-heavy metros, and the correlation between tech growth and demand, offers another data point for the claim that talent, jobs, and money are clustering in superstar metros, and causing cities like San Francisco to become increasingly unaffordable for many.

The Tech Cities report also attempts to rank the top 25 tech cities in North America on the basis of their importance of the industry to the local economy, as well as other workforce statistics. Separated into three buckets—cities where tech is critical, a key driver, and important—the analysis shows how concentrated tech has become in certain commercial real estate markets. For instance, Salt Lake City and Provo, Utah, home to fast-growing tech scenes (as well as housing shortages) are both considered critical markets, where New York City, with a much larger and broader economy, is listed as important.

Cushman & Wakefield