A surge among tech companies leasing office space signals the health of a key cog in Bay Area economy as well as the viability of the local commercial real estate market, according to a recent report.
A report from commercial real estate company CBRE illustrated the extent to which local technology companies have weathered the economic storm brought by the pandemic and again started investing in office space.
New leases accounted for 73.5% of the more than 861,000 square feet leased in major Bay Area tech offices last year, said the report, indicating an expectation for future growth.
“Tech firms in the Bay Area largely deferred or delayed local leasing decisions last year as offices closed to all but essential personnel, yet demand has already started to rise as companies gain confidence in making real estate decisions,” Colin Yasukochi, a director of insights for CBRE said in a press release.
While the uptick in leasing activity can be interpreted as a bet by the tech industry that workers will prefer to return to the office once health conditions allow, the report also noted the degree to which activity on the commercial real estate market slowed over the past year.
U.S. office leasing activity decreased by 36% year over year in 2020, with tech leasing down by 48% to 26 million square feet, said the CBRE report.
Major local tech companies garnered attention last year after pivoting amid the pandemic to allow remote work — raising questions over how the commercial real estate market would be affected.
But in recent months, major companies such as Google and Facebook have said they expect employees to begin returning to their corporate campuses in some limited capacity, showing a commitment to resurrecting the shared workplace.
While the direction of the tech office space market will have broad repercussions across the Bay Area, San Mateo County’s commercial real estate sector is bolstered by its health life sciences industry.
A commercial forecast report for 2021 from real estate advisory firm Avison Young projected San Mateo County will see continued investment due to growth in the biotechnology sector.
“Any available lab space on the market has been quickly snatched up by current and upcoming biotech businesses and it seems like even more developers are working on office/life science conversions due to the never-ending demand on the Peninsula,” said the report.
With the heart of the industry located in South San Francisco, a bulk of the most notable recent real estate investments are focused in the northern part of San Mateo County.
To that end, Healthpeak Properties announced plans in March to begin construction on a life science project at 233 East Grand Ave. in South San Francisco that will feature 141,000 square feet of new commercial space.
“We are pleased to continue to grow our footprint in South San Francisco and meet the growing demand from tenants looking for a distinguished campus in one of the top life science markets in the world,” Healthpeak’s Senior Vice President Scott Bohn said in a prepared statement celebrating the decision.
Similarly, the Avison Young report acknowledged that Genentech is moving ahead with plans to nearly double the size of its campus in South San Francisco.
Though the company started moving in the direction toward investing in its global headquarters prior to the pandemic, its commitment to South San Francisco did not waiver over the last year.
The Avison Young report speculated the critical role the biotech industry will play in advancing recovery from the pandemic will further solidify the market and drive future real estate investment.
“Fueled by the desire and urgent need to get a vaccination out to the people, biotech and health care tenants have been working nonstop and have been expanding their locations whenever possible,” said the report.
That motivation is expected to have a profound impact on the local real estate market, said the report.
“It’s safe to say that at least for the near future, the biotech sector will continue to flourish within San Mateo County,” said the report.