Up, down or sideways? Reading the economic tea leaves of the Bay Area

With a changing economy, it’s important to ask how the Bay Area, the world’s leading center for technology and innovation, is doing. A current snapshot gives some clues.

First, some companies, including HP Enterprise and Oracle, have relocated their headquarters. There are many problems: taxation, social problems and costs (mainly). For the most part, their R&D and most of their labor is here. Silicon Valley has always been about creative destruction and destruction, and we see both. The Bay Area has an army of younger, venture-backed companies looking to expand. Still, no place likes to see businesses go, so let’s call this a negative.

But wait, overseas-headquartered companies with research and innovation offices are expanding their presence, attracted by the Bay Area’s status as the epicenter of the digital revolution. Put it in the plus column.

What about venture capital? Last year was incredible with $105 billion (a third of the US total) invested in Bay Area companies. With investment slumping and startups tightening their belts, this year will be different. More investment will be spread across the United States as opportunities grow elsewhere. On the other hand, we’re hitting an all-time high, so a little cooling off isn’t a bad thing. Cycles are cycles, after all. And even with less funding, 2022 is poised to be one of the best years ever. VCs are raising new funds at a record pace, so the money is there. And if venture funding helps more entrepreneurs across the country succeed, that’s a good thing. Spread the wealth. The capital and the decisions about how to spend it, however, will still be in Silicon Valley. In short, we call this a wash.

The full impact of remote work is unclear, but we know it’s big. The ability to work from anywhere allowed tech workers to move from expensive places like the Bay Area to places where costs are lower. The San Francisco offices are almost empty. This mutes the intense networking that is part of the magic of the Bay Area. This is a negative.

Still, most workers who left San Francisco or Silicon Valley stayed in California. While many companies have downsized their offices, tech giants like Google, Meta and Apple are building sprawling new campuses and signing new leases. Networking is back, with startup cohorts coming back and conferences and meetups picking up again (the recent Plug and Play Summit had 2,300 people, including 1,000 from overseas). There is a palpable desire to reconnect. So this one is neutral for now.

What about tech: the foundation of Silicon Valley? Leasing real estate offers a clue. While the office market has cooled, demand for R&D and advanced manufacturing space has increased. And, by the way, biotechnology is booming with the R&D space also top notch.

Universities like Stanford, Berkeley, UCSF, UC Davis and UC Santa Cruz are producing technology and founders without missing a beat. The Bay Area is America’s leading center for AI research, which will eventually affect almost everything. Patent generation per capita is many times higher than in other regions of the US, and Nature ranks the Bay Area as #4 in the world for science. Numbers 1 and 2 are Beijing and New York (which are much bigger), and number 3 is Boston. Popular destinations for tech nomads appear far down the list, if at all. So this goes solidly in the plus column.

How the Bay Area economy fares in the long term is unclear, and we have tough issues to tackle. But reading the tea leaves, the region’s continued primacy as a global tech hub seems assured.

Sean Randolph is senior director of the Bay Area Council’s Economic Institute.



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About the Author: Chaz Cutler

My name is Chasity. I love to follow the stock market and financial news!