The tech industry increased its share of U.S. office leasing activity to 18% in the first three quarters of this year, boosted in part by companies deploying artificial intelligence, according to CBRE’s annual Tech-30 report.
CBRE’s Tech-30 report, now in its 13th year, measures the tech industry’s impact on office demand and rents in the 30 leading tech markets in the U.S. and Canada, as well as select submarkets.
Tech’s 18% share of total leasing thus far this year represents a 3.8 percentage point increase from 14.2% for all of 2023. The industry’s share exceeds that of the Finance & Insurance industry (16.5%) and Professional & Business Services (15.7%). Tech had trailed both industries in 2022 and the first half of 2023 before reclaiming the lead in last year’s third quarter. It now has held the top spot for five consecutive quarters.
In Canada, the tech industry claimed 15.2% of office leasing activity in this year’s first three quarters, up from a low of 10.3% in 2023. Tech’s share in Canada trailed that of both Professional & Business Services (18.5%) and Finance & Insurance (16.8%).
The tech industry has signaled a recovery this year, following heightened layoffs in 2023 and a general decline in U.S. venture capital funding from 2021 to 2023. Leasing activity is expected to be bolstered by tech job growth, which has risen by 1% through this year’s first seven months, up from 0.3% last year. Venture capital funding, including for AI companies, has increased by 13.3% year-over-year across the first half of 2024, and large-cap tech stocks have elevated the Nasdaq stock index.
Companies engaged in AI development and deployment, while still a small portion of leasing activity, are a growing contributor to tech’s overall share. AI startups have leased 10.8 million sq. ft. of office space since 2019 across the five top markets for venture capital funding of AI companies, which are San Francisco, Silicon Valley, Boston, Los Angeles/Orange County, and Manhattan. The activity rose from 1.6 million sq. ft. in 2019 to 2.8 million in 2023 before slowing this year to 1.5 million sq. ft. through August.
“AI will generate more jobs than it eliminates,” said Whitley Collins, CBRE Global President of Occupier Advisory & Transaction Services. “The growth of that subsector, as well as any continued tech job growth overall, should provide a spark for office leasing activity. It is also encouraging that, even though many tech companies have reduced their office footprints due to hybrid work, the industry’s cumulative square footage leased so far this year leads all other industries.”
The broader office market faces a lengthy recovery from the effects of hybrid work, layoffs in tech and other industries, and inflation. Of the Tech-30 markets, only five posted positive net absorption – meaning more office space was newly leased than newly vacated – between last year’s second quarter and this year’s second quarter. Those are: Nashville, Vancouver, Baltimore, Raleigh-Durham, and Montreal.
Narrowing the focus to the top submarkets for tech companies, eight submarkets registered positive net absorption. Those are led by University City in Philadelphia, Nashville’s central business district, and Minneapolis’s North Loop. Tech submarkets tend to feature newer, higher-end office buildings, leading to an average 10.1% rent premium to their overall markets.
Sublease space offered by office tenants has declined steadily to 162 million sq. ft. in this year’s second quarter, down from last year’s second quarter peak of 181 million sq. ft. However, the latest total remains above pre-pandemic levels.
Overall, tech companies accounted for 27% of the sublease space offered across all industries in the second quarter, up from a low of 12% in 2019. While sublease space offers companies additional leasing options, it hampers office investors through lower-cost competition for tenants and loss of income when these leases expire.
“The recovery of Tech-30 office markets will vary depending on each market’s concentration of tech-talent workers, the presence of AI companies, and local office-attendance policies, among other factors,” said Colin Yasukochi, Executive Director of CBRE’s Tech Insights Center in San Francisco. “Overall, several employment and office market indicators point to growing momentum for the tech industry and its growth catalyst, AI.”
