Tech Sector Sustains Growth in Bay Area

A busy development pipeline, along with rising rents and property values, reflects a robust demand for office space in the region.
Office-using employment in Bay Area, click to enlarge
Office-using employment in Bay Area, click to enlarge

The Bay Area’s office market continues its boom, due to its well-established technology sector and longstanding presence of major companies such as Google, Apple and Facebook. Demand for space is robust, which is reflected in a busy development pipeline and rising rents and property values.

The Bay Area’s strength is seen in the employment picture. The metro added 38,500 jobs in the 12 months ending in April, led by the information sector with 9,700 new jobs. Office-using employment is a particular bright spot, expanding by more than 50 percent since the start of this economic cycle and adding jobs at more than twice the national rate. What’s more, the growth shows little signs of a slowdown.

Office market fundamentals remain solid. Roughly 7.5 million square feet is under construction, while developers navigate impediments such as the 50,000-square-foot cap on new office space in Palo Alto. Luckily, the restriction doesn’t apply to Stanford Research Park, the area’s largest technology park.

Leasing activity is solid, save for a few far-flung suburban submarkets. Rents are growing in more in-demand submarkets, led by the $113.43 per square foot commanded in Mountain View–West. Companies have also shifted their focus to secondary submarkets, where prices are more affordable, such as Fairfield ($26.12). Investment volume has lost step compared to prior years, due in part to soaring prices, but investor demand is strong if the asking price is reasonable.

Read the full Yardi Matrix report.