While technology employment growth is slowing after an era of overhiring in the COVID-19 pandemic, a bright spot is shining on jobs related to artificial intelligence in North America's top tech markets, giving a much-needed boost to office leasing.
The San Francisco Bay Area, Seattle and metropolitan New York hold the largest clusters for AI talent, accounting for 44% of those jobs in the United States, according to CBRE's annual "Scoring Tech Talent" report. In Canada, Toronto, Vancouver and Montreal are the AI leaders, representing 60% of those jobs across the country. The findings align with CoStar's analysis of office demand in leading AI cities across North America.
In fact, the AI boom has changed how tech workers are employed: nontech industries — including professional and business services and finance — hired more tech workers than traditional tech companies last year, CBRE said in its report. It's the first time that has happened in CBRE's 11-year history of analyzing the ability of the top 50 U.S. and Canadian markets to attract tech employees based on factors including salaries, college degrees and rent for offices and apartments.
The upending of how tech workers are employed comes as demand skyrockets for AI staffers including software developers and programmers. That surge has helped drive growth in tech talent in the U.S. and Canada with AI startups leasing office space, said Colin Yasukochi, executive director of CBRE's Tech Insights Center in San Francisco.
"The demand for AI talent has risen dramatically," Yasukochi said. And that's not expected to stop anytime soon. CBRE anticipates more tech hiring for AI roles to take place this year and into 2025 as companies further develop and adopt this technology, Yasukochi said.
The broader tech industry went from a hiring frenzy to layoffs in recent years as tech giants such as Google, Meta and Microsoft found themselves with an excess of tech workers as they made a major shift into investing in AI technology. Overall U.S. tech talent jobs rose 3.6% in 2023, slowing from 2022's 7.3% growth. Software developers and programmers, jobs making up most AI-related roles, accounted for 72% of the 213,000 new U.S. tech jobs last year, CBRE found.
The strong demand for AI jobs also helped drive wages, with software developers seeing salaries increase 12% year over year despite layoffs in tech. The San Francisco Bay Area, Seattle and New York had the highest average annual tech wages in 2023, followed by Washington, D.C., Boston and San Diego, according to CBRE.
The growth of AI startups seeking a place to house employees has added to office leasing activity in major tech hubs. About one-fifth of the nation's AI talent resides in the San Francisco Bay Area — a dominant tech hub — leading to a quarter of all office leases in downtown San Francisco being signed by AI companies, CBRE said.
Other top markets
Improvement in office leasing conditions this quarter is providing optimism that the worst may be over for San Francisco's office market, according to CoStar analysts. Leasing volume in the past six months was the highest since early 2022. Expansion by tech companies, particularly in the AI sector, has led to an uptick in new space requirements and leasing activity. Moreover, the pace of downsizing and lease exits by existing tenants has abated somewhat from the record pace of such activity in 2023, according to CoStar.
Office leasing is showing similar promising signs in Seattle, New York and Toronto, according to CoStar data.
Smaller AI startups are also leasing space in downtown Toronto, another major tech hub, with some AI companies doubling down or expanding their existing office space, said Liz Nucci, a senior vice president in CBRE's Toronto office.
Meanwhile, the finance industry in New York has become a major employer of tech talent as smaller AI companies contribute to the overall office leasing volume in the city, said Sacha Zarba, vice chairman of CBRE's Midtown Manhattan office and co-founder of CBRE's technology and media practice group. Tech continues to be a dominant employer in New York, he said, with Toronto also being an important tech hub offering a discount compared to New York for tech firms.
Tech firms were found to be more likely to hire remote workers to help broaden the talent pool. About 15% of tech talent job postings offer a fully remote option to potential employees, according to the report. However, hybrid work arrangements are likely to persist even as cities with a high concentration of tech companies have some of the lowest office attendance rates in the country.
The top three North American markets for overall tech talent include San Francisco Bay Area, Seattle and New York again. Toronto moved up one spot on the report this year to rank No. 4 and Austin, Texas, also gained a notch to rank No. 5, pushing Washington, D.C., out of the top five. Washington, D.C., fell two spots to sixth place because of slow job growth. Other markets in the top 10 include Boston, Denver, Dallas-Fort Worth and Ottawa.
The tech markets that moved up the most this year are Raleigh-Durham, San Diego, Detroit, Houston and San Antonio. Markets that moved down the most include Quebec City, Edmonton and Vancouver.
Since tech industry jobs command a premium salary with roles paying 17% more than the average U.S. job, tech companies can expect higher annual costs for their operations. The total annual cost for labor and real estate for a tech firm with 500 employees in 60,000 square feet of office space ranged from $35 million in Quebec City to more than $81 million in the San Francisco Bay Area, according to CBRE.
CBRE also analyzed emerging tech talent markets in Latin America and the "Next 25" of lesser-known and underdeveloped U.S. and Canadian markets. Mexico City, São Paulo and Santiago were the top three emerging tech markets in Latin America while Monterrey, Mexico, was the fastest-growing.
The brokerage identified the "Next 25" smaller tech markets with strong growth potential for employers that might be looking to expand their geographical reach. Ranking in the top of that group are Huntsville, Alabama; Colorado Springs, Colorado; and Dayton, Ohio.
Emerging and lesser-known tech markets can offer a lower cost of living to workers, helping smaller startups with their operating costs. Last year, CBRE reduced the footprint of its estimates from 75,000 to 60,000 square feet of office space, in a move more reflective of the industry norms and helping offset higher wage costs that continued to rise in the past year.