Tech Employers' Spillover Effect on Office Rents

Michael Tucker mtucker@mba.org

October 30, 2018


Technology companies from northern California, Seattle, Boston and New York are expanding into new markets, creating more office space demand and rent growth in beneficiary markets, reported CBRE, Los Angeles.

Together, tech firms headquartered in those four key technology markets have taken more than 25 million square feet of space outside of their headquarters markets over the past five years. CBRE noted nine of the top 10 beneficiary markets saw rent growth that exceeded the 5.6 percent U.S. average over the past two years.

Firms based in the San Francisco Bay Area accounted for 18 of the 25 million square feet absorbed, CBRE said.

"San Francisco Bay area out-migration has been driven by tech firms' outsized growth and a combination of scarce office space and a tightening labor market, which has necessitated a more distributed workforce," said CBRE Director of Research and Analysis Colin Yasukochi. "By expanding into other markets, these tech firms can tap into new and potentially lucrative business opportunities clustered in other markets, such as media and entertainment in Los Angeles or machine learning and cyber security in Washington, D.C."

The top four tech headquarters markets also feed each other, Yasukochi said. Cross-market expansion between the San Francisco Bay area, Seattle, Boston and New York accounted for nearly 14 million of the 25 million square feet of migration.

The Seattle office market benefited most from this migration, with San Francisco Bay area firms absorbing 3.5 million square feet there over the past five years, Yasukochi said. This correlates with the growth of Seattle's high-tech job base, which increased 26 percent over the past two years, surpassing San Francisco in high-tech job growth for the first time in seven years. Accordingly, Seattle's office rents are up 14 percent over the same two-year period and net absorption is up 5.2 percent.

"We expect large tech companies to continue to expand outside their headquarters markets--including further into secondary and even tertiary markets--particularly as space availability in top tech submarkets continues to tighten, driving rents up," Yasukochi said. "Large tech company expansion into smaller markets will help foster innovation clusters, further boosting job creation and creating additional office demand."

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