Chapter 8
How does tech talent impact commercial real estate?
Scoring Tech Talent 2023
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Since 2020, U.S. tech talent growth, primarily in the high-tech industry, totaled 610,000 jobs and has been the top driver of U.S. office leasing activity.
Recent economic uncertainty and rising layoffs caused a sharp drop in the high-tech industry’s share of total U.S. and Canadian leasing activity6 in 2022. Many tech talent markets, especially those with high concentrations or clusters of tech companies, had seen rising rents and declining vacancies prior to the pandemic. All but eight markets have seen office vacancy rates increase since early 2020, with the highest Q4 2022 vacancy in Calgary (30%). Compared with pre-pandemic Q1 2020, rents in New York and the San Francisco Bay Area were 5% lower in Q4 2022. Austin, Canada's Waterloo Region, Tampa and Vancouver had rent growth of 20% or more over the same period.
Tech talent continues to impact office markets through work-from-home and return-to-office policies. As hybrid work arrangements become more common, tech employers have been reconsidering their office space strategy. While many have downsized, others have maintained their portfolio size to accommodate large team meetings and ensure that there is sufficient space for collaboration.
6Includes transactions 10,000 sq. ft. or larger each quarter for the markets tracked by CBRE Research.
Figure 32: Office Asking Rent by Market (Q4 2022)
Note: New York represents Manhattan only, all others are metro area.
Source: CBRE Research (Office Market), Q4 2022.
The in-migration of talent to these tech markets also has a sizeable impact on residential real estate. Apartment rents have increased in almost every market since last year. Manhattan remains the most expensive with an average monthly rent of $3,508 (Figure 33). All but nine markets have seen average apartment rents recover to pre-pandemic levels, led by Tampa with 38% rent growth from Q1 2020 to Q4 2022. Comparing the annual average apartment rent with the annual average tech-worker salary shows that tech salaries generally can cover the cost of living in most of the priciest markets (Figure 34), based on the affordability standard of 30% of income to housing.
Figure 33: Average Monthly Apartment Rent by Market (Q4 2022)
Note: New York represents Manhattan only, all others are metro area.
Source: CBRE Econometric Advisors, Axiometrics, CMHC, Q4 2022.
Figure 34: Ratio of Apartment Rent to Average Tech Wage by Market (US$)
Note: New York represents Manhattan only, all others are metro area.
Source: U.S. Bureau of Labor Statistics April 2023, Statistics Canada April 2023, CBRE Econometric Advisors, Axiometrics, CMHC Q4 2022.
The pandemic has fundamentally changed real estate market dynamics across North America. How we use office space in the future and where we choose to live is unlikely to revert to pre-pandemic patterns. Technology’s importance in society and to real estate utilization has been accelerated and disrupted. This will create new opportunities for both real estate occupiers and investors in tech talent markets.
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