NO VACANCY: How the Bay Area Tech Boom Will Push Employers to Minimize Their Bay Area Presence
The following is a guest post written by Skyler Sanders, Esq., Bay Area Real Estate Professional
For anyone living in and around the Bay Area, it is becoming painfully obvious that the region is running out of room. As tech companies expand and as local startups move from the garage to the office park, available commercial and residential space is drying up.
Right now the Bay Area is a sponge, soaking up any vacancies that hit the market. A recent study by Cassidy Turley reveals that in 2014, office vacancy rates decreased to 6.5%, even while adding 27.6 million sq. ft. Industrial space experienced a 4.6 million sq. ft. positive net absorption, while premium retail space is virtually non-existent at a 1.1% vacancy rate. And as all companies, not just tech, compete for any available space, rental rates continue to climb. The low inventory and high costs are not just limited to commercial real estate.
In the Bay Area, the strong demand for housing by tech employees has pushed the median home price well above $1 Million, a price generally only affordable for senior level employees. This effective prohibition on home ownership for the majority of Bay Area residents has acted as a catalyst to drive up rents, with average rents now over $3000/mo. For those residents who attempt to escape to the East Bay, where home prices are slightly lower, they are still met with high average rents—the vacancy rate in the East Bay is the lowest that it has ever been at 3.2%–not to mention hours spent commuting on the Bar Area’s highly congested freeways. Moreover, the cost of living continues to rise as business pass on their soaring overhead costs to consumers. And with every company that continues to grow, the problem will only get worse; for example, after years of leasing or buying any available space in and around Mountain View, Google has plans to hire 25,000 or more employees in the bay Area over the next five years. Where are those people going to live?
Despite some Bay Area residents belonging to the C-Suite or being part of a recent multi-million dollar IPO, the majority of Bay Area tech industry residents are junior or mid-level employees. While no employee would turn down a raise that would allow him or her to afford this area, tech companies are very hesitant to pay these employees what a senior level leader would be making elsewhere in the country. Moreover, when combined with the regions high commercial real estate prices and government fees and regulations, it does not make fiscal sense for tech companies without a specific need to stay in the Bay Area to remain.
Thus, as tech companies with stagnating to medium revenue growth look to cut costs and improve earnings, it is very likely that the same companies that made this town boom will look to push employees to lower cost locations where they can pay lower wages.
The observations and opinions stated above are the authors own observations and opinions, and do not necessarily constitute the real estate strategy of any specific Bay Area tech company, including the author’s employer.
By: Skyler Sanders, Esq.
Bay Area Real Estate Professional
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