Tech Industry Geographically “Follows the Talent”

NEW YORK CITY—In major metropolitan areas, companies, regardless of the vertical, are often competing for space to attract talent—and tech companies are no different. Both small start-ups and established conglomerates have recognized the need for a major presence in places outside of the Bay Area including Austin, Nashville, Seattle, Boston, Washington DC, and now with an imminent fervor—New York City. They have begun to take large portions of high-rise buildings and trophy assets in dense urban areas, while simultaneously building campuses in suburban areas.

The talent pool is critical for all occupiers in general but never more so for technology companies. As they compete for top talent, we would expect the cities that have deep talent pools will continue to attract big tech tenants.

Tech in the Big Apple as a demand driver

While Silicon Valley will always be synonymous with the tech sector, New York City is quickly gaining ground as a “must be” destination for the industry, boasting the largest number of persons employed in tech occupations in the country, with over 400,000.

Developers are expected to add 68 million square feet of office space this year across the country, the largest addition to US inventory in a decade and approximately 9% (6 million square feet) of this is delivering in New York. However, the supply is being balanced by demand—and from none other than tech companies, who continue to dominate new leasing demand. TAMI (Tech, advertising, media and information) accounted for 25.3% of New York City occupancy in 2018 up from the 16.7% recorded in 1990.   

The recent news of large companies putting down roots in New York City reinforces this trend, demonstrating just how serious large, established tech occupiers are about broadening their commercial footprint. Google, for example, now ranks 12th by leased office space in Manhattan, with 1.8 million square feet. They are likely to break the top 10 within the next year, with additional space being considered.

The ripple effect extends beyond immediate employment gains. Studies show that high paying technology jobs have a strong (sometimes as high as 5x) multiplier effect on employment in an area over a decade. While the effect is felt most directly on office leasing demand we expect the multiplier effect (and associated real estate impact) to also filter through to retail, hospitality and housing over the longer-term. And the money is flowing in from the VC community; $14.9 billion of venture cap was invested in New York City between Q3 2017-Q2 2018.

Tech as a transformer and enabler

Apart from driving demand, the tech industry is also changing the way companies are transacting, analyzing and approaching commercial real estate through the development of PropTech. CB Insights and KPMG estimate that $5 billion was invested in real estate technology companies in 2017 and this is expected to grow to $20 billion by 2020.

The increase in PropTech goes hand-in-hand with an almost exponential increase in the availability of existing and new data that relates to real estate. This had led to an increased focus by market participants (both investors and occupiers) on making data driven real estate decisions. The development of AI and machine learning means that we are entering into an exciting era of in-depth data mining and predictive analytics.

On the transactional end, blockchain, the technology behind cryptocurrencies, will over time change the way real estate is transacted from tokenization and smart contracts in the short term to property listings, buying and selling and recording transactions in the longer term.

Going Forward

In 2019, expect to see these companies setting up shop in new metropolitan areas particularly those with a strong and growing pool of talent – driving commercial real estate demand in these cities. In addition, the growth of PropTech and new technologies like Blockchain will help make the industry more data driven, responsive and efficient.

With 22 years of experience in CRE, Revathi Greenwood is the Americas head of research for Cushman & Wakefield. The views expressed here are the author’s own and not those of ALM’s real estate media group.