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US Office Leasing Driving the Tech Industry

Two years after the start of the COVID-19 pandemic and several setbacks to planned returns to the office, tech companies remain the biggest driver of office leasing nationally.

Since March 2020, the five largest US tech companies have expanded their office space to a total of 101 million square feet. Ft., says Scott Homa, senior director of office research with commercial real estate services firm JLL. In the fourth quarter of 2021, technical tenants accounted for 22 percent of all office lease volume nationally, with a total of 3.8 million square feet. foot

For example, during that quarter, Meta leased 1.1 million square meters. Office space in three markets, including Silicon Valley, the San Francisco Peninsula and Seattle, according to Foot JLL. Leasing by tech firms that were larger than 100,000 square feet. Foot grew faster than the overall market.

Social media, e-commerce and software companies, which dominated office leasing activity in 2021, saw their business grow during the pandemic and continue to grow their workforce, according to the Tech Insight Center at the commercial real estate’s San Francisco office Colin Yasukochi, executive director of Services firm CBRE. In fact, the tech industry led the rebound in US office leasing activity in the last three quarters of 2021, leasing 76 percent more office space than a year ago, Yasukoki notes.

According to Homa, a notable new trend was the significant amount of new leasing activity in the satellite markets. “Technology users are increasingly targeting smaller markets to provide broader access to talent, lower labor costs and workforce flexibility. While markets such as Atlanta, Austin, Denver, Nashville, Portland and Raleigh are satellite growth markets for the industry. As has become famous, the constant migration from the Bay Area and the search for housing affordability among employees has technically seen an even wider set of other geographies, including Phoenix, Miami, Boise and Madison,” he says. .

Most of the leases signed by tech companies last year were new leases in new locations, Yasukochi says, noting that both an increase in demand and the drive to increase diversity are factors driving recent expansions in Seattle, Boston, Austin and Phoenix. “Some companies sought to improve diversity by expanding into Atlanta, Washington, D.C., and New York, among other goals,” he noted.

For the time being, demand for office rentals has remained stagnant in tech-heavy markets, with the exception of San Francisco, where rents are correcting on a direct ask basis, according to Homa. One reason for this is that before committing to larger and longer-term leases, many companies are turning to flexible office space operators to dip their toes in new markets. (This is happening not only among tech companies, but also among legal, finance and consulting firms).

Meanwhile, direct landlords are offering tenants’ concession packages that are worth 30 to 35 percent more than pre-pandemic levels, providing a substantial discount to the effective rent, Homa says. As a result, effective rentals for Class-A office space in central business districts (CBDs) are currently down about 7% from year-end 2019 levels. This represents a slight improvement after effective fares declined by about 14 percent during 2020.

According to Yasukochi, rents have increased slightly in some markets with a heavy tech presence, however, the leasing activity of tech firms has not yet moved the overall market. This is due to the relatively high level of office vacancy across the country, which would require more demand across all industries to go down in a significant way.

Some of the big tech players have bought office property almost at a higher watermark value over the past year, Homa notes. But this has been the exception, not the norm, as most tech companies continue to lease their space, rather than own it.

According to Yasukochi, the majority of such acquisitions have taken place in strategic or headquarters markets such as New York and Seattle-Bellevue, Wash. For example, Alphabet paid $1.2 billion for a 1.3 million-square-feet in the third quarter of 2021. The waterfront asset on Manhattan’s West Side, the most priceless deal for a single US office property since the start of the pandemic, according to wall street journal, “Those are markets where they know they will be long term and thus they want to control their real estate growth potential.”

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