1. Tech headcounts rose rapidly after 2019
In spite of recent layoffs, average headcounts remain 66% up on pre-pandemic levels among major tech companies. Amazon’s headcount, for example, rose from 800,000 prior to the pandemic, to a peak of 1.6 million in early 2022, before dropping back to 1.5 million.
In common with labour markets in general, tech job markets remain tight. In the US, new job postings are well above layoffs, with tech professions in demand across all industries as organisations continue to focus on digital transformation.
Source: Savills Research using company reports, Meta, Amazon, Apple, Netflix, Alphabet, Microsoft, Tesla, Nvidia, Advanced Micro Devices
2. Hybrid working holding on
During the pandemic, many firms, but especially tech firms, embraced hybrid working as a method of maintaining productivity while also adhering to social distancing measures. What was a temporary solution to an historic pandemic has become the de-facto way of working for many. The office plays a central role in the hybrid model and remains critical to operations for many tech companies.
The widespread adoption of hybrid working means that office utilisation rates (the number of people working from the office on any given day) remain below the pre-pandemic average. Across the selected Tech Cities for which there is data, office utilisation rates average just over 60%, although there is significant regional variation. APAC markets, with a stronger culture of presenteeism, have an average utilisation rate of 77%, while EMEA and Americas locations hover stubbornly around the 50% mark.
In 78% of markets, the utilisation rate for tech offices is lower than the office market as a whole. The notable outliers are markets in China, where tech office utilisation is higher, or similar, on average. China has seen much lower prevalence of home working; however, even with the relaxation of zero-Covid policies.
3. Office costs call the shots
After their employees, the space that a firm occupies is its most expensive cost. A more challenging economic environment, coupled with the adoption of hybrid working, mean many organisations are beginning to rethink their space needs.
Some are consolidating into smaller, but higher quality, green-certified space remains in demand such as Google’s plan to move all of its London employees to it’s purpose-built ‘landscraper’ in Kings Cross in 2024.
However, suitable green-certified spaces are difficult to find in many markets. In Los Angeles for example, 95% of its stock was built prior to 2010 and only 13% of stock is green certified; Paris also suffers from an oversupply of older offices, with 79% of its stock built before 2010 and less than 10% of the existing stock is green certified. The search for ESG compliant spaces is part of a broader, global trend of a flight to quality among office occupiers.
Others are subleasing space, most notably in the US. After an initial wave of subleasing as the pandemic changed working habits, a second wave has been observed as tech companies started to cut costs. This is particularly the case in the US: in San Francisco 10% of office inventory was available for sublet in Q4 2022, of which 73% was given back by the tech sector.
4. Long-term remote tech workers eye lifestyle hubs
During the pandemic, many tech companies gave their employees greater flexibility where to be based, and some made the move to full time remote work. Provided travel connections are good and high-speed internet is reliable, some individuals and families were motivated to relocate to places that place a greater emphasis on health, wellness and overall lifestyle. Start-ups in particular benefit from lower overheads that long-term homeworking may bring.
In our Executive Nomad ranking, Lisbon, Miami and Dubai top the list, Tech Cities in their own right, but boosted when measured on appeal to remote digital workers alone thanks to the lifestyle they offer.
Top markets for long-term remote workers: Savills Executive Nomad Index
Source: Savills Research (note, prime rents receive a half weighting). We analysed 15 destinations based on their appeal and ease of access for long-term remote workers. They have then been ranked for their connectivity, climate, prime residential rental market and quality of life.
5. Top tech cities come at a cost
For tech companies that want to locate within the established tech hubs that rank at the top of the tech cities index, that move will come at a cost for both the company choosing to lease top-quality space and for its workers.
Second-place tech city New York, for example, has the second most expensive office rents and highest-cost apartment rents of our top ranked cities (see chart).
In spite of lower office utilisation and consolidation among occupiers, prime office rents have remained stable as occupiers search for the best quality, most sustainable office spaces, which are undersupplied in many markets.
Rising Tech Cities such as Houston, Raleigh-Durham, Bristol and Tallinn have lower costs which can make them more appealing for tech workers, especially those who can work from anywhere and choose to take advantage of these lower costs. These markets may also appeal to tech companies looking to take lower-cost office space.
Residential rents have also risen as workers return to cities for work and for city amenities. One city which has benefitted from the return to urban life is Singapore, with demand for residential property surging over the last year as firms, and their workers, move to one of the leading business and tech hubs in Asia Pacific. Rents in the city-state have increased 26% over the past year as demand continues to outstrip supply. Such trends will likely only further the appeal of lower-cost challenger and rising tech centres.
Access to top tech hubs comes at a cost – but some offer value
Cost of renting prime office space and apartment rent selected tech centres (per square foot)
Source: Savills Research using Savills Prime Office Costs, Savills Prime Residential World Cities Index
Rents showing signs of stability in many tech markets
2022 change in prime rents, selected tech cities
Source: Savills Research using Savills Prime Office Costs, Savills Prime Residential World Cities Index
