Bay Area cities losing technology edge in U.S.
Could the Bay Area be slipping from its peak as a destination for economic prosperity and innovation?
Absolutely, a new report suggests.
San Jose and San Francisco have lost ground to up-and-coming tech hubs in the West and South, according to the Milken Institute, which said both cities have fallen to “Tier 2” in its annual report on best performing cities. The COVID-19 pandemic has stalled short-term job growth in the region and high housing costs have been a drag on attracting new professionals, the Milken report said.
Researchers also saw a weakening economy in Oakland, with similar Silicon Valley woes as well as a slowdown in international trade hurting the ports.
“The cost of housing is a real issue,” Kevin Klowden of the Los Angeles-based Milken Institute said. “Affordability was hitting a limit.”
The analysis adds fuel to the concerns over the region’s deepening housing shortage and suggests competitive challenges ahead as tech hubs expand in lowercost cities. Provo and Salt Lake City, Utah rose to the top of the Milken rankings, along with other cities popular with Bay Area refugees: Denver, Seattle, Boise, Idaho, and Austin, Texas.
San Jose dropped from fifth to 24th in the rankings, while San Francisco fell from first to 22nd and Oakland slipped from 17th to 65th.
The Best-performing Cities
report, first published in 1999, considers job and wage growth and the size of the innovation economy.
“High tech jobs and knowledge jobs not only pay more, but they are more stable in this economy,” said Klowden, executive director of the think tank’s Center for Regional Economics.
This year, researchers considered housing costs and broadband access for the first time. Klowden said the two new metrics were important in measuring how successful a region could be at attracting and keeping professionals.
“We’re trying to capture whether a metro has the capacity to add more people,” he said.
Housing affordability is a major hurdle for residents in most California metros, he said.
Techies and other professionals have migrated from the region during the pandemic, choosing to work remotely in cheaper cities or finding more space outside urban cores. Rents for two-bedroom apartments have fallen 23% during the pandemic in San Francisco and 10% in San Jose. But prices for existing Bay Area homes have soared to record levels, reaching $935,000 in December.
The pandemic and restrictive immigration policies also have stifled a traditional influx of foreign professionals to work in the tech industry. Foreign entrepreneurs have been less likely to relocate to the Bay Area to seek funding and talent.
“That’s had an impact,” Klowden said.
Housing affordability has been a major concern in the business community. Lower income residents working in the service industry and other jobs shuttered by the pandemic have struggled to meet housing costs. Joint Venture Silicon Valley estimated nearly 200,000 Bay Area residents were at risk of not making their rent or mortgage at the end of 2020.
Jeff Bellisario, executive director of the Bay Area Council Economic Institute, said remote work could change the equation for many Bay Area companies looking to expand. Lowercost areas might become more enticing if companies believe they can preserve culture and productivity.
“Remote work is the wild card; what’s going to happen?” he said.
Tech giants Hewlett Packard Enterprise and Oracle announced last year they’re moving their headquarters to Texas. Other parts of the businesses could follow.
Population growth has stalled in the Bay Area, and the pandemic raises questions about what office and work conditions will be when the pandemic has been successfully managed. “If you can work anywhere, you can live anywhere,” Bellisario said.
The Milken study found the Provo metro, home to Brigham Young University, has drawn tech companies including Qualtrics, Vivint and Smartcitizen. Other cities seeing strong growth in the tech sector include Raleigh, part of North Carolina’s research triangle of universities, Melbourne, Florida, south of Cape Canaveral Air Force Station, and smaller cities throughout Utah and Idaho.