Companies hiring tech workers across North America can expect to need 20% less space for a 500-person office than previous decades as layoffs and other cost cuts have joined remote and hybrid work of late as a bigger part of the industry norm.
That’s the estimate of CBRE, the world’s biggest real estate brokerage, in its annual “Scoring Tech Talent” report analyzing the ability of the top 50 U.S. and Canadian markets to attract tech employees based on a variety of factors. One is the average yearly cost a tech firm might anticipate paying to operate in a market, including salaries and office rent.
The report this year estimates how much it would cost a tech company with 500 employees renting 60,000 square feet, a 20% reduction in the brokerage’s office space benchmark it has used for more than a decade.
The reduction in office space, the first in the report’s 11-year history, scales back from the estimate of 75,000 square feet for 500 employees. The decrease of expected office space reflects a broader change in how offices are being used in various industries.
By whittling the office footprint of the theoretical 500-person tech office in the annual report, Colin Yasukochi, executive director of CBRE’s Tech Insights Center in San Francisco, told CoStar News it’s “a little more closely aligned with what the reality is” and “how much space these companies are looking for” when those firms conduct a real estate search.
In all, real estate only accounts for about 5% of the total cost of a tech office operation, with much of the expenses tied to an office earmarked to pay high-tech workers, said Yasukochi, one of the report’s authors. Tech companies are adjusting their real estate portfolios to better accommodate employees as work evolves.
The most expensive market to operate a 500-person office with 60,000 square feet is the San Francisco Bay Area, with annual estimated costs at $79 million, according to CBRE’s 2023 report. The costs are higher than what other industries might expect, with tech industry wages being about 16% higher than the United States average, according to the report.
Tech Layoffs
The tech industry has been the hardest hit by layoffs in the past year, with large companies laying off thousands of employees. Amazon not only laid off thousands of tech employees, but it also halted construction at its second headquarters, which it dubbed HQ2. Facebook’s parent Meta laid off thousands of employees throughout the globe and also put some of its pricey real estate on the market.
Other tech firms, such as Indeed, are also in layoff mode. Most of those layoffs, or roughly 75%, at the tech firms were tied to non-tech employees, with companies wanting to keep as many tech workers as possible even during tough financial times, Yasukochi said.
In addition to those layoffs, the number of tech job postings also dwindled in the last year. The number of tech job postings was cut in half from a peak of 900,000 such postings in mid-2022 to 450,000 by early 2023, according to CBRE’s report.
Of the 593,000 jobs clocked in May, about 20% of those positions had a remote work option, the report stated.
“Working from home more than in the office remains the tech industry standard,” according to the report, which notes demand for tech talent remains high despite recent layoffs and economic uncertainty. “Remote and hybrid work will benefit tech talent employers and challenge some office markets with reduced demand, which is why our annual cost analysis cut the amount of office space needed per employee.”
By hiring remote workers, tech employers are able to diversify their workforce both geographically and demographically. Employers are also able to cut down on the office space it leases in a given market, which could put pricier real estate markets on the table for consideration.
Top Markets
The San Francisco Bay Area held onto its No. 1 spot out of the top 50 tech market in the United States and Canada by overall score, which is based on 13 data points such as graduation rates, tech job concentration, tech labor pool and real estate and labor costs.
Each measurement is weighted by its relative importance to job creation, with the concentration of tech talent carrying the heaviest weight and the cost of real estate carrying less.
Seattle once again came in at No. 2 for overall score, followed by New York City, which moved up from No. 5 on last year’s report, Washington, D.C., and Toronto.
Markets on the decline in the 2023 tech talent ranking include Columbus, Ohio, which moved down six spots to No. 37, followed by Minneapolis-St. Paul, which moved down five spots to No. 26.
There are a total of 7.1 million highly skilled tech workers in the United States and Canada, with these workers accounting for about 4% of the total workforce in the United States and 6.5% of the total workforce in Canada in 2022.
Between 2020 and 2022, the number of tech talent workers increased by 11.4% or 610,000 workers in the United States, higher than the nation’s total employment growth during that time of 6.3%.
