Boston— The tech industry led a rebound in U.S. office-leasing activity in 2021, fueled by increased hiring and demand for tech products and services, according to CBRE’s annual Tech-30 report. Tech companies claimed a 22 percent share of U.S. office-leasing activity in the second and third quarters combined, up from 17 percent for all of 2020.
In Boston, the tech-favored East Cambridge submarket outperformed the citywide office market. Specifically, East Cambridge posted one of the lowest vacancy rates in the country at 6.8%. And East Cambridge’s average office rent sits at a 114 percent premium to Boston’s overall average – the highest premium among the North American tech submarkets in CBRE’s analysis.
“Tech companies demand high-quality space with superb amenities and as a result, Boston’s East Cambridge area has fared exceptionally well,” said Ron Friedman, Executive Vice President, CBRE. “Rents have increased two and one-half times faster in East Cambridge as compared to the overall Boston office market – 120% vs 48% over the past ten years.”
CBRE’s Tech-30 report, now in its 10th year, measures the industry’s impact on office demand and rents in the 30 leading tech markets in the U.S. and Canada, as well as certain tech-heavy submarkets. This year, tech companies’ office leasing activity increased by 122 percent on average in the second and third quarters, compared to the first. In addition, more than two thirds of the top 30 North American tech markets registered office-rent growth from the second quarter of 2019.
Over this two-year period, four markets posted double-digit percentage gains in office rents: Seattle, Charlotte, Vancouver and Austin. Separately, six markets posted gains in net absorption – the net amount of office space newly occupied or vacated – since mid-2019. Those are Charlotte, Raleigh-Durham, Nashville, Salt Lake City, Indianapolis and Phoenix.
The gains in tech’s office leasing underscore the industry’s resilience during the pandemic. U.S. tech employment now exceeds its precrisis level by 3.3 percent, surpassed only by the life sciences industry (6.9 percent). The tech industry expanded by 219,000 jobs in the U.S. since May 2020. The top Tech-30 markets for tech-job growth in 2019 to 2020 are Toronto (a gain of 26 percent), Seattle (22 percent), Vancouver (21 percent), New York (18 percent) and Austin (16 percent).
Boston posted tech-job growth of 7.1 percent and office-rent growth of 3.3 percent in that timeframe.
Yet the tech industry still poses a challenge for office markets in one regard: sublease space. Office space listed for sublease by tech companies in the Tech-30 markets nearly doubled from last year’s first quarter to this year’s third, now totaling 134 million sq. ft. Tech companies currently account for 23 percent of all office space listed for sublease in those markets, up from 14 percent in 2019. Still, indicators of leasing activity show that the U.S. total of sublease space likely peaked last quarter.
Among the most resilient office markets in this downturn are leading tech submarkets, which often are located near universities. CBRE has found that office lease rates in leading tech submarkets carry a 23 percent premium, on average, to rates for their cities as a whole. Those with the largest premiums are East Cambridge in Boston (114 percent), Palo Alto in Silicon Valley (66 percent) and Santa Monica in Southern California (63 percent). Tech submarkets also tend to generate some of the strongest rent gains and office-space absorption in their cities.
Top Tech-30 Submarkets
|Submarket||Two-Year Rent Growth*||Submarket||Two-Year Rent Growth*|
|Oakland/East End (Pittsburgh)||34.6%||Northeast (Charlotte)||12.2%|
|Lake Union (Seattle)||24.1%||Broadway Corridor (Vancouver)||12.0%|
|Downtown West (Toronto)||17.4%||Far North Dallas (DFW)||10.2%|
|Tempe (Phoenix)||13.6%||Downtown (Denver)||10.0%|
|University City (Philadelphia)||12.8%||Sorrento Mesa (San Diego)||9.1%|
- Q2 2021 vs. Q2 2019
CBRE’s report also identifies markets well positioned for resiliency and continued growth based on tech job growth and momentum, office market performance and demand recovery. Those are Charlotte, Montreal, New York, Phoenix, Pittsburgh, Raleigh-Durham, Seattle, Silicon Valley, Toronto and Vancouver.