Despite steady increases in remote work, physical offices continue to hold value — and, in the technology sector, Silicon Valley is one of the best choices. According to a report by Kidder Matthews, overall office availability in Silicon Valley recently dropped by 60 points, but vacancies rose by 80.
But who benefits from these changes, and what does this mean for the business sector as a whole?
What is the difference between overall availability and vacancy?
While vacancy rates offer current knowledge on open spaces, availability provides a more complete picture — accounting for future vacancies and leases that will soon expire.
Kidder Matthews’ report suggests that, despite high vacancy rates, available spaces are being leased or sold at a much quicker rate than usual. The number of property sales in San Francisco have increased by over 100% this past quarter. While the average sales price over the past five years is $622.98, the recent average price was only $360.25, revealing accelerated discount rates. This flow, while beneficial for the total business sector, could threaten the average business owner as competition over office space grows.
But aren’t rent decreases good for businesses?
Rent decreases do indicate that individuals from a variety of backgrounds and business stages may afford to lease spaces, but this does not necessarily guarantee that they are able to.
Price decreases signal greater supply, which seems excellent for budding organizations — but, as prices fall, rivalry surges. As more businesses compete over the same spaces, those with the greatest negotiating power ultimately prevail. LinkedIn recently purchased 120,000 square-feet of land in Silicon Valley, spending $74 million. Large sales like this appeal to lessors, enabling lead technology companies to dominate office space. While LinkedIn has leased its purchased land to other organizations in the past, it sets higher prices to turn a profit. Thus, costs fall for large businesses, but smaller organizations and start-ups still struggle to afford or secure office space.
How does in-person work affect employment?
As vacancy rates increased but availability continues to decrease, currently vacant spaces expect future occupancy, opening a variety of new positions for prospective employees.
Silicon Valley’s unemployment rate has acted accordingly. Over the past quarter, Santa Clara County alone has seen a sharp drop by 40 points in unemployment, corresponding to California’s overall less significant decline of 10 points. Office vacancies don’t always signal job losses: in this case, availability rates offer a clearer picture of the job market — which, encouragingly, is showing signs of improvement.
What if small businesses work remotely?
With remote work as an option, tighter office availability may push more operations online, potentially making traditional office space unnecessary. Nevertheless, a major shift to online work has its own unique consequences.
For one, according to the U.S. Bureau of Labor Statistics, remote work may support employee satisfaction, leading to greater productivity and hiring efficiency. For the businesses, this leads to substantial overall economic growth, but such growth does not support employees in the same way. While productivity rose following the pandemic, salaries for workers did not. If such a pattern does not eventually change, in-person work may become more appealing, endangering the same small businesses that reaped the benefits of technological advancement.
Although working from home increases opportunities for business owners, certain prospective employees face different impacts. According to the U.S. Census, as virtual work requires certain technological capabilities, less wealthy prospective employees tend to gravitate toward in-person work. With the rise of online and decrease of in-person positions, these individuals ultimately lose opportunities.
So what happens now?
Market trends over the past quarter leave consumers and business owners with plenty of uncertainty, but one fact is clear: established businesses and smaller businesses continue to grow apart in their operation methods, spending and employment.
This leaves the business sector with a sharp divide, opening the floodgates to a shaky future for small business owners, office space lessors and employees overall.
