A surge in west coast leasing by high-tech companies looks set to make San Francisco the most expensive US office location. According to brokers CBRE, it will be the first time in more than a decade that Manhattan has lost its number one spot as America’s commercial capital.
The cost of opening an office in San Francisco is now rising faster than any other city in the country, claims a CBRE investigation into the effects the technology industry is having on the property market.
Its report says that if West Coast rents continue to rise at their present rate the city will be America’s most expensive by the end of next year — the first time it has overtaken New York since the dot-com bubble in 2000.
CBRE — which has its own headquarters on the Pacific coast — says that since the end of the recession high-tech and information companies have dominated the US office leasing market. Nationwide, one in four new office-based jobs now go to the technology sector.
And in San Francisco alone, a city regarded as the industry’s hub, almost 70 per cent of deals completed in the first half of 2014 were signed by high-tech and internet businesses such as social media, data-storage and mobile-application startups.
“At the heart of high-tech growth is strong demand for products and services from consumers,” explained Colin Yasukochi, CBRE’s research and analytics director in San Francisco. “As long as high-tech companies align themselves with this demand, the unrealistic growth and valuation expectations that defined the dot-com bubble should be avoided.”
He said that while the coast-to-coast difference was slim, it was significant. Through to the end of 2015 Manhattan rents are expected to reach $69.68 (£41.74) per sq ft, while San Francisco office prices should peak at around $69.71 (£41.76).
CBRE records show that the last time San Francisco’s office market saw such growth was during the 2000 boom in internet stocks, with average rents soaring 79 per cent that year to $73.64 (£44.11) before crashing to $31.04 (£18.59) at the end of 2001.
One factor this time is that leasing demand in New York from financial firms — the city’s traditional business core — has badly lagged behind technology, media, advertising and information companies, which accounted for 41 per cent of new US office jobs between 2011 and 2013. In San Francisco, however, hiring at such companies is around 56 per cent.
“San Francisco’s economy is also benefiting from growth at health-care and education companies and restaurants as well as in tourism and construction,” added the city’s controller, Ben Rosenfield. “Even industries that have been flat for a long time, such as manufacturing, are starting to hire again.”
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