News & Research Archive

Impact of Tech Growth on a Community if it Fails

Jun 06, 2012

 

For years our country's communities have been built and supported by one industry that supports each community. Historically, factories hired the majority of a town and created enough needs for services to support the rest. When the day came that the factory closed, the community was left devastated and as most cases in American history show, never fully recovered.

For Americans, the effect of these disruptions to the economy are nothing short of a disaster both for the individual, families, the entire community and often times, the state at large. It was not long ago that Detroit was one of the most populated cities in America. Today, Detroit and its auto industry are more notable as a ghost town than a thriving American success story.

Today San Francisco and the Bay Area are experiencing another tech boom. Firms such as airbnb, Dropbox and Yelp have set up their headquarters in San Francisco, replacing familiar names such as: Bank of America, Chevron and Wells Fargo. These firms are hiring, taking office space and helping build new communities in places such as Mission Bay and South of Market; all positive effects. However, it must be considered what will happen if these firms don't make it in the long run. The hypothetical dissolution of tech firms has the potential to be as devastating to our community as the closure of factories in days past.

The bottom line is that most of these new firms are not initially profitable and exist in the hopes of a big gain when they go public. This is great short term but creates problems when mergers occur and technology firms are joined together instead of growing independently. What happens to these firms when they look to expand in other cities or countries and realize that as well as having market potential, these new locations offer significantly cheaper rental rates?

I fully support tech growth and anything we can do to facilitate success within the industry. However, as a community we also need to support other businesses as well as our core service industry to insure that we help them grow and succeed independently of this tech growth boom.

One of the effects of this tech boom has been the incredible raise in office rents as well as residential rents over the last year; in some sub-markets the increases have been as high as forty percent. Tech firms can afford these rates now but traditional businesses such as accounting, law firms, real estate and others may struggle to keep up. On a whole, business throughout the country may be improving but only at a slow, stabilizing pace.

A balance must be established through regional leadership so that when our tech market takes a hit, and it will, we have a diverse enough range of jobs to take that hit without it tearing our communities apart.

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Written by: Hans Hansson

E-mail: hans@starboardnet.com


Hans Hansson is President of Starboard TCN Worldwide Real Estate Services as well as a member of the Board of Directors for TCN Worldwide Real Estate. Hans has been an active broker for over 27 years in the San Francisco Bay Area and specializes in office leasing and investments. If you have any questions or comments please email hans@starboardnet.com or call him at (415) 765-6897. You may also check out his website, http://www.commercialspacefinder.com/.

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