Tech Dominated 2020 Office Leasing Despite Losing Market Share

Nationally, tech held onto its status as the most active industry in office leasing last year despite the sheer drop in activity, making it the ninth consecutive year of tech dominance, according to a report from CBRE. With major companies announcing reopening plans, 2021 could be a continuation of tech’s market command.

Although tech held a similar top spot in the overall San Francisco Bay Area’s office market, the region slipped from having the most tech office leasing in the country last year — a title achieved by Seattle that had 14 of the largest 100 tech leases, with a total of 3.4M SF of office leased to tech companies in that market. Meanwhile, the Bay Area had seven of the top 100 largest leases, with 862K SF leased.

However, last year could be an outlier, according to CBRE Tech Insights Center Executive Director Colin Yasukochi, who said it is quite likely that the S.F. Bay Area will once again lead the nation in tech office leasing in 2021.

“By the time we finish out 2021, many of these Bay Area firms would have signed new or renewal leases this year that would get them back to the No. 1 spot,” Yasukochi said. "I think [2020] is just kind of an anomaly in terms of having companies up in Seattle expanding because they needed to, as their business was expanding quite a lot. In the Bay Area, you had most companies pulling back on leasing activity.”

The boom in e-commerce particularly spurred a busy 2020 for Seattle-based tech giant Amazon.

While tech office leasing in Seattle isn’t expected to drop significantly, Yasukochi said that the Bay Area should have a much more active year once companies resume leasing decisions and move to repopulate offices.

There are already signs of this potentially pivotal shift. Uber just opened its new headquarters in Mission Bay at limited occupancy on March 29, and Google, Facebook and Salesforce have all announced plans for spring reopening, as reported by the S.F. Business Times.

However, tech leasing in S.F. proper was off to a slow start this year, according to CoStar Group Director of Market Analytics Jesse Gundersheim, who said that the largest office lease signed in Q1 2021 was by Goldman Sachs, which took 88K SF at 555 California St.

“The lines between tech and non-tech are becoming blurred as many industries operate on a digital platform today and deliver their services electronically,” Gundersheim said in an email. “For example, Varo, a mobile-only neobank, just signed a lease for nearly 25K SF. It is leading technology firms like Varo that can take over space once occupied by tenants viewed more in traditional business sectors, such as Wells Fargo in the finance sector.”

JLL Executive Managing Director Chris Roeder said he sees significant signs of positivity in the Bay Area’s tech industry, especially in terms of hiring.

“If you look at the top 25 largest public companies in the Bay Area — all of them hired a significant amount of employees during Covid,” Roeder said. “A lot of them had record hiring — very few of them have leased more space. But the hiring was a record.”

The top tech giants had more job postings at the end of 2020 than the end of 2019, Roeder said, adding that office property tours are back to pre-pandemic levels.

“We're tracking 25 requirements in San Francisco by companies that are looking for 50K SF or greater,” Roeder said. “Only six of those 25 are lease expiration driven — 19 of the 25 are expansion driven, 16 of the 25 are new to the market since January of ’21. And only five of them right now are in letter of intent. So from an activity standpoint, I think that people are absolutely gearing up. It's just going to take a little bit of time.”

Although tech dominated office leasing last year, the decline in activity resulted in a drop in total square footage and leasing activity from 2019 levels. Total office leasing nationally dropped by 36% year-over-year between 2019 and 2020, and tech leasing dropped by 48% to 26M SF, according to the CBRE report. Tech’s total leasing market share dropped from 21% in 2019 to 17% in 2020, though the industry has led the office leasing market since 2013.

The software and e-commerce tech subsectors accounted for the lion’s share of tech square footage leased nationally last year, according to the report. The number of new leases surpassed renewals in 2020, which bolstered tech’s dominance.

In the Bay Area, leasing activity was down by between 60% and 75%, depending on the submarket, with the steepest drops in S.F. and Silicon Valley, which have the highest concentration of larger tech companies, Yasukochi said.

“Tech firms in the Bay Area largely deferred or delayed local leasing decisions last year as offices closed to all but essential personnel, yet demand has already started to rise as companies gain confidence in making real estate decisions,” Yasukochi said in a statement. “Technology has been critical to conducting day-to-day business during the pandemic, fueling growth in business and talent for many tech firms. This growth will likely supersede decreased need for space resulting from remote work and more geographically diversified hiring, leading to greater demand for real estate in the Bay Area in the future.”