While Silicon Valley and San Francisco tend to be conflated in the minds of many without close knowledge of the Bay Area, they are quite different regions — with one distinction clearly drawn in a new report by a national commercial real estate broker.
CBRE ranks both regions highly in its new Tech-30 report — which measures the tech industry’s impact on demand and rent for office space in 30 leading tech markets in the U.S. and Canada — but the report shows significant differences in market performance during the Covid-19 pandemic.
San Francisco was high on the list for growth in the number of tech jobs (26.9% growth in 2018-2019 from 2016-2017), and had a high number of startups and venture-backed tech firms, but CBRE noted that the city was at risk for rising sublease availability (5.9% as of Q2 2020). Also, the nature of those companies and the city’s office space opened the market to certain vulnerabilities concerning the pandemic.
“The city of San Francisco contains the largest concentration of young startup and public companies that have been significantly affected by the pandemic-related shutdowns,” Colin Yasukochi, executive director of CBRE’s Tech Insights Center, stated in a press release. “San Francisco also faces social distancing headwinds in the near-term in its density and reliance on public transit and vertical office towers.”
Roughly an hour’s drive to the south, however, is Silicon Valley, which CBRE called “the tech market that is most resilient and poised for future growth.” The region saw 11.6% growth in office rents in a two-year period that ended June 30 (ranking it No. 4 in that metric), and had a net absorption increase of 4.7% for office space, putting it at No. 6 by that measure.
Unlike San Francisco, the office spaces in Silicon Valley’s submarkets are dominated by large, well-established tech companies like Alphabet, Apple, Facebook and Netflix, which have mostly well-weathered the Covid-19 pandemic and the transition to working from home.
“During the pandemic, the tech industry became indispensable in accelerating the digital economy, resulting in more investment as strong earnings by major tech companies drive increased valuations. These companies were major consumers of office space,” CBRE wrote in its report.
That said, San Francisco still has good future prospects because of its abundance of currently risky and vulnerable startups: “Real estate users and investors tend to make their decisions based on the long term, and history has shown us that turmoil always leads to innovation. San Francisco’s abundance of high-tech talent and venture capital remains the ideal ecosystem for producing the next crop of pioneering startups,” Yasukochi stated in the press release.
Though both regions — and the greater Bay Area as whole — suffer from high rents and a lack of office space, CBRE notes that many tech companies are still looking for more room in which to grow, even with the rise of remote working.
“The Covid-19-induced recession has released the pressure on both fronts, and we expect companies to take advantage of the opportunities created by increased office vacancy,” stated Todd Husak, the managing director leading CBRE’s Tech & Media Practice. Read more via BizJournals