Tech hiring slowdown could have big impact for office market
Although certain cities will remain tech hubs, such as Silicon Valley and Boston, the tech sector is spreading across the U.S.
A slowdown in tech hiring could have a big impact on the overall office market, according to one industry watcher.
BMO Capital Markets analyst John Kim told CNBC’s ‘Squawk on the Street’ that he recently downgraded three office REITs with high exposure to the tech sector, noting that a pullback in tech hiring could ultimately weigh on REITs’ revenue and earnings.
“When we talk about companies that are doing expansionary leases often in big developments and now they are cooling off in hiring, that could be a major issue for the office REITs,” Kim said. A rash of tech companies have slowed hiring in recent weeks, with Microsoft announcing last Thursday that it would ramp down hiring for its Windows, Office, and Teams software groups, according to Bloomberg reports.
Meta also announced plans to pause hiring, while Amazon’s CFO said on a recent earnings call that its warehouses are “overstaffed.” And in late May, Redfin confirmed the “difficult decision to freeze hiring and rescind a small number of job offers” as the housing market cools.
“It’s really about the perception of the company and their growth profile,” Kim says. “So again, a lot have been growing a lot through developments, that’s been the one bright spot for the office REITs, and if those developments are unable to attract tenants, that could [effect] valuation. It already has.”
Tech leasing accounted for 22% of all office leasing in the last quarter. The sector has been heavily battered by COVID, with those concerns accelerating as of late as companies struggle to implement return-to-work and hybrid work plans for teams that have become increasingly geographically dispersed. And the pullback in tech demand “really takes the leg out of the stool for growth” for some office REITs, Kim says.
In addition to a slowdown in tech hiring, geography is also at play, with a new crop of tech hubs taking center stage, led by some unexpected metros. The top emerging tech markets—defined by Moody’s Analytics as regions with at least 10% more growth in employment for computer and math occupations than the national average since 2018 or at least 4% more median annual wage growth for computer and math occupations since 2015 compared to nationally—include Ventura, Buffalo, Greensboro, Miami, Greenville, Knoxville, New Orleans, Norfolk, San Bernardino, Nashville, Lexington and Wichita.
“With skilled labor relocating beyond the bounds of established tech hubs and fleeing the lofty rents and wages within them, larger tech firms may rethink their roots,” Moody’s analysts note. “Silicon Valley, Seattle or Boston will likely remain top tech hubs, but there is movement towards tech sector balance spreading throughout the country.”