The tech sector has been surging, but can it continue its torrid pace?
The short answer is no. The tech sector will continue to grow, but it can’t hope to sustain its incredible growth forever.
Office and multifamily markets in tech-heavy communities like San Francisco, New York City, Seattle and Los Angeles will see a slowdown due to decreasing demand from tech tenants. Attribute that to the fact that those tenants have been growing at an unsustainable pace. Available office sublease space in San Francisco has already jumped, moving from 1.3 million square feet in February 2015 to 1.9 million just one year later. This is according to CoStar reports cited by Bisnow.
Fitch Ratings reports that while office and multifamily owners could see some risk from lower tech-tenant demands, industrial and healthcare REITs should see little (or no) risk unless the regional markets are subject to economic softening. Retail owners will experience less risk (compared to office) because they tend to have longer leases and lower rates of tenant failure.
Owners might not want to hear it, but it sounds like demand will return to more normal levels over the next few years.