If there's one breed of company that lends to remote work, it's tech. Tech leaders are, by nature, agile and adaptable when it comes to employees working outside of office buildings, and in the wake of the pandemic, it's fair to say that many will be more flexible with regard to employee work schedules.
Despite the remote work trend that's emerged thanks to the events of the past 15 months, tech companies aren't rushing to dump office space in Silicon Valley. In fact, demand in the area remains high, even with tech firms being poised to downsize their square footage at a time when so many other companies are doing so.
Silicon Valley remains hot
Silicon Valley had little available office space before the pandemic began. And throughout the health crisis, companies have been keeping up with their rent payments and hanging onto their office space even with much of their staff working from home.
It's a stark contrast to the hit many other office markets have taken over the past year and change. In New York City, office building vacancies recently reached a 30-year high. San Francisco's market has been sluggish as well.
But in Silicon Valley, vacancies reached just 11% during the first quarter of the year, according to brokerage Jones Lang LaSalle Inc. That puts Silicon Valley at the bottom of a list of over 50 U.S. office markets. By contrast, New York's vacancy rate was 13% during the first quarter, while the vacancy rate was 16% in San Francisco and Seattle.
A more positive outlook
As coronavirus vaccines continue to reach American arms, there's hope that many of the office REITs (real estate investment trusts) that lost value over the past year will regain much of it as companies ramp up leasing activity in conjunction with making plans to return staff to in-person work. But in some parts of the country, leasing activity could remain sluggish, especially as companies reevaluate their office space needs and attempt to eke out savings by downsizing their square footage.
That's not expected to happen in Silicon Valley, though. Not only are many tech companies eager to bring staff back to the office, but Silicon Valley has the distinct advantage of being more suburban than other major office markets like New York City and San Francisco. As such, it may not have experienced the same mass exodus of residents during the pandemic.
Over the past 15 months, workers have been abandoning larger cities to save money and gain access to more living space. But since Silicon Valley area rentals may have offered residents more space to begin with, it may have been spared that same migration pattern, which could make it a lot easier for local companies to get their employees back to work in person.
All told, real estate investors in Silicon Valley offices may have avoided the massive hit to their portfolios that those with New York City office REITs experienced. And while there's reason to believe that the entire office sector is poised for a recovery, albeit a gradual one, things are looking especially strong in the tech capital of the country.