The growth of the tech workforce has long had an impact on U.S. metros, sparking real estate development and creating a need for more housing. Tech talent has been flocking to the San Francisco Bay Area because of additional opportunities and the number of tech jobs available across multiple industries. The Bay Area scored the highest in CBRE’s latest tech talent report.
At 4.9 million, tech workers make up 3.5% of the workforce in the U.S., but they can make or break a city’s real estate market. Tech workers have added over 1 million jobs to the U.S. economy in the past five years, three times the national average. The number of tech workers increased 27% during that time.
CBRE analyzed 50 of the largest markets in the U.S. and Canada using 13 metrics to measure the market’s depth, vitality and attractiveness to companies. The report looks at the depth of talent across multiple industries, such as an analyst or programmer working in finance, and not just the tech industry itself.
San Francisco Bay Area, Seattle and New York are the top three tech talent markets, according to the report. Seattle and New York moved up in the rankings since last year, pushing Washington, D.C., out of the top three markets. Atlanta and Toronto rose into the top fifth and sixth position. The Bay Area scored over 15 points higher than Seattle and New York, but its lead is shrinking as more markets expand their tech workforces, according to CBRE Senior Research Analyst Lexi Russell.
“Other large tech markets may not catch up with the size of tech talent in the Bay Area, but a lot of these markets have been diversifying their labor forces and tapping into this tech talent creative workforce,” Russell said.
As companies look for the best and brightest talent, they are expanding into new markets, such as Atlanta or Pittsburgh, and partnering with local universities to find the best talent.
The Bay Area’s tech talent is about 10.3% of the region’s labor force, which is the highest concentration in any of the other top markets. Its tech workforce grew nearly 50% from 2011 to 2016 and totals over 328,000.
The region’s tech industry benefits from talent coming from educational instructions. The area issued 28,804 tech degrees from 2011 to 2015 while also creating over 109,000 jobs, creating a gain of more than 80,000 workers. Comparatively, Boston and D.C. issued over 80,000 tech degrees combined, but only created over 50,000 jobs, leaving over 35,000 tech graduates to find jobs elsewhere.
Having a large tech workforce has turned the Bay Area into a magnet for recent graduates because the region is where change is happening and where there are a lot of opportunities, Russell said.
Millennials, who make up a huge chunk of the tech workforce, have been moving to the region, although not as fast as Seattle, where housing is more affordable. The Bay Area’s millennial population increased 9.5% from 2010 to 2015, compared to 16.6% in Seattle.
While the Bay Area is the highest-cost market it also attracts quality tech workers, according to the report. For a tech firm with 75K SF and about 500 employees, it can cost over $57M each year since the region has some of the highest rents and the highest annual salaries for tech.
Tech’s Impact on Bay Area Real Estate
Along with tech’s growth in the Bay Area and throughout the country, demand for office space has increased. Tech’s share of leasing activity in the U.S. increased to 19% in 2017 compared to 11% in 2011.
The region posted immense growth in the tech talent portion of the population over the last few years, which was unsustainable, according to Russell. The segment now has companies growing at a steady pace.
“Demand for real estate is here even if it is not over the top like we’ve experienced post-2008 when things went crazy and growth skyrocketed,” Russell said. “We’re back in a more normalized growth period.”
Office rents in the Bay Area have doubled within the last five years largely due to demand coming from tech. Bay Area’s vacancy rate of 7.7% as of Q1 is among the lowest in the country. Annual gross direct asking rent is the second-highest in the country at $61.42/SF.
Apartment rents too are among the highest with average rent at $2,790/month, an increase of 38% from 2011. Rent-to-wage ratio for tech workers is about 27.2%, which is not as high as the rent-to-wage ratio in New York since Bay Area tech workers are paid almost $20K more than New York tech workers.
“Costs are high, but the outlook is positive because the Bay Area continues to attract and create what people think of as tech,” Russell said.