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Skills, Salary & Supply Mismatches in the Bay Area

Hiring activity in San Francisco, despite the market showing signs of approaching its limits in terms of office leasing, has not slowed much. A few companies have implemented cutbacks or hiring freezes, but these cuts appear to be on par with what is normal in a very competitive tech environment. Even as the pool of talent dries up and wages spike, hiring managers say they anticipate more payroll growth in 2016. Based on a recent survey by Dice – 78% of hiring managers in the tech sector expect to increase their hiring next year. Of note, many managers surveyed said that some jobs remain unfilled not just to skills mismatches but also due to excessive salary expectations. A few firms are moving some of their operations to other markets. Lyft, for example, is setting up its engineering hub in Seattle and moving customer support functions to Nashville.

In its most positive light, the moderation in expectations among investors is viewed as a healthy development. Similarly, the slower leasing in the office market and movement of some firms to Oakland, East Bay and Mid-Peninsula can be construed as a natural reaction to extreme supply constraints. Faced with negligible supply (8% availability) as well as spiking rents (nearly twice as high as the US index) and wages (47% higher hourly wage vs US average per BLS), many companies have logically turned their search elsewhere.

The market is no longer running full throttle as tenants with growth needs are trying to push decisions off as long as possible – they don’t want to lock in right before rents hit an inflection point. There is a fairly long list of tenants in the market for 100,000 sf or greater, but it did not change much over the second half of 2015. These tenants seem to be waiting for high residual value improved space (i.e. low capital need), longer term deals. The quarter started with news that Twitter pulled back from a 100,000 sf expansion at 1455 Market. Midway through the quarter, brokers for Twitter began spreading word a 51,000 sf block of space at 1355 Market Street was up for sublease, hoping to secure a deal to unload the space off market. Twitter’s decisions may be a bit of relief to other tenants seeking big blocks.


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Keith DeCoster

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