Of all the demand for new office space in San Francisco, 80 to 85 percent is coming from technology companies, according to researchers.
That reflects the dramatic pace at which technology companies have been adding jobs, with employment in the sector up about 17 percent last year compared with an overall employment increase of 4.6 percent.
And the pace of hiring in tech isn’t expected to slow, according to a new survey of chief information officers at 100 technology companies in the Bay Area done by Robert Half Technology, the staffing firm.
“It’s going to continue, and it’s going to be more and more difficult to hire very skilled IT professionals because at this point you’re hiring them away from your competitors,” said Dakin Gunn, Robert Half’s director of permanent placement services in San Francisco.
Tech employment in the city is now at an all-time high in raw numbers, hitting 53,319 in the fourth quarter, up from 45,493 a year earlier and 36,639 at the end of 2011, said Colin Yasukochi, head of real estate research and strategy at CBRE. Employment overall in the city has also reached record numbers.
That compares with a total of 32,500 in the first quarter of 2001 at the height of the dot-com bubble.
“It’s enormously larger than what it was,” Yasukochi said. The growth, he said, has come mostly from larger tech companies, many of which weren’t even very significant in size in San Francisco just a few years ago.
“Think Salesforce. Think Twitter, LinkedIn, Dropbox, Uber, Square,” Yasukochi said.
Back then, banking and finance was also No. 1 in terms of its impact on the local office market, but that changed in 2010, Yasukochi said.
“Now tech is the No.1 industry,” he said.
Inbound requests to staffing firms from companies needing help filling roles are dramatically up as companies are finding it difficult to land candidates in a hyper competitive environment, Gunn said.
One result is that salaries for technical employees are expected to rise roughly 7 to 10 percent and even as high as 12 percent as companies try to retain staff, Gunn said.
The highest demand is for software engineers, who enjoy a 2 percent unemployment rate in San Francisco, compared with an overall 4.4 percent unemployment rate, Gunn said.
Also hot are network administrators, skilled help-desk technicians able to do application and network support, data scientists to help make sense of the vast quantities of digital information companies are gathering, and database developers.
A person with a doctorate can easily get a salary of $180,000 to $200,000, while someone with a master’s might command $130,000 to $150,000 for starters, Gunn said.
In addition to showering cash and stock on such employees, companies are adding junior workers to help lighten the workloads of senior people they don’t want to lose, as well as beefing up on perks to keep employees happy — welcoming dogs in the office, letting people work flex hours or from home and sponsoring gyms.
“That is translating into the hottest office real estate market by far in the Unites States and arguably in the world right now,” said Garrick Brown, director of research at Cassidy Turley, the commercial real estate firm, who comes up with similar numbers.
The average asking commercial rent in San Francisco has jumped by 80 percent over the last four years and continues to grow at a very fast pace, Brown said.
In the second quarter of 2010, in the midst of the worst of the recent recession, the city’s commercial vacancy rate was 15 percent. It is now 8 percent and will likely drop below 5 percent in the near future, he predicted.
Relief isn’t in immediate sight.
Of some 3.5 million square feet of office currently in the construction pipeline in San Francisco, 75 percent has already been leased, Brown said.
“The tech companies are leasing space in advance with the expectation that they’re going to be able to continue hiring at this level,” Brown said.
It’s more than the technology companies that are creating jobs in San Francisco.
Since 2010, when the city was losing jobs, industries as diverse as construction, retail, manufacturing, hospitality and transportation have added jobs.
The city’s leisure and hospitality businesses grew by almost 25 percent in that period. Retail expanded by 15.1 percent. Manufacturing grew by 9.1 percent. And construction grew by 14.4 percent.
San Francisco officials said the job growth across so many sectors is a result of both the broader economy at work as well as efforts to court particular companies.
“We’ve continued to do business development work in the technology, life science/health care, clean tech/green business and tourism sectors,” said Todd Rufo, director of the San Francisco Mayor’s Office of Economic and Workforce Development, in an interview earlier this year. “We have an initiative focused on the nightlife and entertainment sector… We have workforce sector (job) academies in health care, construction, hospitality.”
Part of the reason that job growth has been so broad-based is because so many sectors of the economy were hit during the Great Recession.
“There is some natural bounce off the bottom,” said Scott Anderson, chief economist for Bank of the West.
Anderson said that while the economy in San Francisco — and in the Bay Area in general — is strong, there are a number of things that could slow the city’s growth.
“Shocks from abroad” is one, Anderson said, especially regarding trade with China and Asia more broadly. Given the Bay Area’s strong export market to Asia, an economic slowdown in that part of the world could be felt here.
He also pointed to home prices as a potential negative. “If home prices get way out of whack you could see that weigh on in-migration.”
But Brown says the impact that all of the tech hiring and wage increases are having on the character of San Francisco and surrounding areas is “palpable,” with a bleed-over effect. That has contributed to increases in non-tech wages and the rising costs of living and doing business in San Francisco, increasingly driving lower to mid-level income people out with some businesses as well.
In the first quarter of the year, notably, Oakland had a 500,000 square-foot jump in demand for office space, most of it coming from nonprofits, legal firms and small businesses. Meanwhile, Oakland’s apartment vacancy rate in the city has fallen from 6 percent to just over 2 percent over the last couple of years.
“It’s a fact. It’s all tech-driven,” Brown said.
Even officials at some tech companies tell Brown they are feeling squeezed by rents in San Francisco, but they typically don’t go to cheaper markets in the area due to fears about not being able to hire, get funding, be acquired or stage an IPO, he said.
Tracey Grose, vice president of the Bay Area Council Economic Institute, said tech is spreading around the Bay Area, and also concentrating in San Francisco. It is significant that big tech companies from the South Bay and outside the region have been opening sizable outposts in the city. She cited as examples big leases signed by Amazon, EBay, Microsoft, Yahoo and Virginia-based telecommunications company Neustar. Others by LinkedIn and Google come to mind as well.
Visa moved its headquarters to Foster City in 2012, but just a year later it signed a 111,000-square-foot lease at One Market Plaza to house its engineers, including the fast-growing mobile payment application group, Grose noted.
“Companies are all looking to tap into young tech talent, which wants a lively urban setting,” she said. “Young people don’t even want to drive.”