How tech giants are dominating US commercial real estate
US tech giants have become an increasingly dominant force in the US commercial real estate market due to economic uncertainty and the increasing popularity of remote working, the Wall Street Journal reported Tuesday.
Five of the largest real estate owners in the tech industry – Amazon, Facebook, Apple, Google Parent Alphabet, and Microsoft – continued to rent and acquire large office space as other real estate transactions delayed
According to CoStar Group, the five tech titans together occupy around 589 million square feet of US real estate, five times more than in 2010. That is more than all office space in New York City or the equivalent of around 220 Empire State Buildings.
Alphabet owned $ 39.9 billion in land and buildings (excluding real estate under development) in September alone, up from $ 4 billion a decade ago, according to a report with the Securities and Exchange Commission. Amazon followed suit late last year with real estate valued at $ 39.2 billion, a little more than $ 1 billion more than in 2010.
“This is perhaps the best opportunity ever in the real estate industry,” Roy March, executive director of real estate investment bank Eastdil Secured, told WSJ. “I don’t think we’ve ever had such a demand that has been pushed out of any sector since the invention of the internal combustion engine.”
Facebook, Microsoft and Google said they would support teleworking beyond the pandemic. However, their appetite for warehouses, data centers, retail stores, and even more office space continued to grow. In 2020 alone, CRE companies grew by more than 25% – the fastest rate in the last 10 years.
According to the WSJ, tech companies are using their huge cash reserves to buy real estate in large metro instead of renting office space.
Google’s first major real estate purchase was a $ 1.8 billion office building in Manhattan’s Chelsea neighborhood. The acquisition put an end to the real estate market crisis in New York and “triggered a year-long price boom,” says the report, citing Douglas Harmon, chairman of the capital markets at Cushman & Wakefield, who brokered the deal. Google has rented more office space in the area and bought another nearby building for $ 2.4 billion.
Partly due to Google’s expansion, office rents and home prices in the area have increased faster than the Manhattan average over the past 10 years. The expansion also resulted in an influx of employees looking for apartments that were within walking distance of work. This helped strengthen retail, restaurants, and other businesses.
“Technology tenants tend to create ecosystems, just like financial service tenants did when they dominated the city’s skylines,” said Michael Turner, president of Oxford Properties Group, which rented an office building in Hudson Square to Google in 2019.
However, firms have influenced long-term residents, increasing housing rents and making cities less affordable for many. After some setbacks from local residents and politicians, the five tech companies have pledged to devote billions to creating affordable housing, “but the sums are far too small to offset their impact on apartment rents,” the WSJ said.
According to Victor Hoskins, head of the Fairfax County Economic Development Authority, technology giants are the biggest source of new demand for real estate today, driving real estate prices soaring.
Last year, Amazon opened its first office campus in Arlington, Virginia and is committed to adding 25,000 new employees over the next decade. “The closer you get to the Amazon campus,” Hoskins told the WSJ, “the higher the peak.”