November 28, 2017
By: Steffen Kammerer, Senior Vice President, JLL
JLL’s latest report on Tech Office Trends shows the Bay Area’s continuing dominance as a global center of innovation.
This may be news to some of you reading this, but the revered “three dot” Chronicle columnist Herb Caen christened San Francisco “Baghdad-by-the-Bay” because of its diversity and multiculturalism. While that diversity still exists, if he were alive today I’d like to think he’d propose a name like “Tech-by-the Bay”. After all, the Bay Area is clearly the world’s largest technopolis.
The tech sector is the largest consumer of office space nationwide and nowhere is this fact more evident than right here.
About 80 percent of new leases (20,000 square feet or more) in Silicon Valley since September 2014 were inked by tech companies, according to JLL’s latest High Tech Outlook. Tech companies also accounted for roughly two thirds of the large leases signed in San Francisco and 60 percent of the leases on the Peninsula during that time. Even ‘secondary’ tech markets such as Oakland and the East Bay saw close to 40 percent of large leases taken up by tech companies.
Of course, “tech sector” means something a little different today than it did even ten years ago, let alone in Herb’s time. (He never used a computer to write his column.) Tech once was comprised of hardware and software companies and makers of computer peripherals. Then, along came the Internet and suddenly the tech sector ballooned to include dot coms.
The tech sector today is very different, encompassing almost every aspect of the economy – housing, manufacturing, transport, oil and gas, defense, retailing and so on. Consumers are among the biggest technophiles. According to Pew Research, a third of all Americans live in households with three or more smartphones.
Less of a bubble, more an economic revolution
That’s probably one reason why this period of tech expansion seems a bit more sustainable and robust than prior cycles. Technologies are penetrating every part of our daily lives, from cradle to the grave. Wearables help remind us to exercise or take medication or phone calls. Apps on our smartphones assist us in knowing when the next taxi, bus, ride-share or train will arrive; let us order and arrange for lunch delivery; pay for goods at the local store or online and set our DVR to record. Our desktops and tablets allow us to watch TV as if we were at home on the couch and talk real-time in video chats with friends or business colleague’s half a world away. Robots can fill an online grocery order in just five minutes.
Then, there is the interconnectedness and access to “big data” that today’s technology brings. The Internet of Things (IoT) is already all around us, its inevitable growth seemingly only to be slowed by the speed with which the information superhighway can carry traffic. Yet, regardless of the speed of growth, there is no doubt that tech is permeating all corners of the economy, sometimes at a dazzling pace.
This is a factor in the success of many cities around the country, but especially here in the Bay Area. Our 2017 ranking of top tech markets – which weighs several data points from market momentum and cost to population diversity, education, transit and innovation – places the Bay Area firmly at the top of tech office markets nationwide.
The Bay Area isn’t the biggest market in the country for tech employment. The New York-Newark-Jersey City market employs almost 290,000 in tech related industries, whereas our two major markets combined total 265,000 jobs. Yet, the Bay Area is arguably the center of the tech universe. Here is where a history of innovation and entrepreneurial spirit, access to venture capital and a steady stream of locally educated college graduates and researchers and strong links to Asian markets as well as the rest of the U.S, have all come together to foster a diverse and increasingly robust technology-based economy.
Of course, these and other appealing factors have pushed up demand and this, in turn, has pushed up the cost of living and doing business in Tech-by-the-Bay. This is one reason average tech wages are higher here than anywhere in the country. And, while office rents are, not surprisingly, among the highest in the country, so too is the price tech firms must pay out-of-pocket to make their coveted space appeal to today’s tech workforce.
So, while the Bay Area leads the way in today’s tech economy, it also leads the way in terms of cost. Right now, that’s a price major tech firms, and even startups, are prepared to pay in order to have a presence here in Tech-by-the-Bay.
I specialize in site selection and lease negotiations at JLL for commercial real estate clients in Silicon Valley. I understand the needs of emerging technologies in the local market which gives me a unique perspective on critical principles that must be incorporated into transactions.
You can contact me directly by phone at 650-480-2214 or via email at firstname.lastname@example.org.