With a changing economy, it’s important to ask how the Bay Area — the world’s leading hub for technology and innovation — is faring. A current snapshot gives some hints.
First, some companies — HP Enterprise and Oracle among others — have moved their headquarters. There are any number of issues – taxation, social problems and cost (primarily). For the most part, their R&D and most of their workforce are here. Silicon Valley has always been about churn and creative destruction, and we’re seeing both. There’s an army of younger, venture-funded companies in the Bay Area looking to expand. Still, no place likes to see companies leave, so let’s call this a negative.
But wait, overseas-headquartered companies with research and innovation offices are expanding their presence, drawn by the Bay Area’s status as the epicenter of the digital revolution. Put that in the plus column.
What about venture capital? Last year was incredible with $105 billion (one third of the U.S. total) invested in Bay Area companies. With investment falling and startups tightening their belts, this year will be different. More investment will be spread across the United States as opportunities elsewhere grow. On the other hand, we’re coming off a record high, so some cooling is not a bad thing. Cycles are cycles, after all. And even with less funding, 2022 is on pace to be one of the best years ever. VCs are raising new funds at a record pace, so the money’s there. And if venture funding helps more entrepreneurs across the country to succeed, that’s a good thing. It spreads the wealth. The capital and decisions on how to spend it, though, will still be in Silicon Valley. On balance, let’s call this a wash.
The full impact of remote work is unclear, but we know it’s large. The ability to work from anywhere enabled tech workers to move from expensive places such as the Bay Area to places where costs are lower. Offices in San Francisco are nearly empty. This mutes the intense networking that is part of the Bay Area’s magic. That’s a negative.
Still, most workers who left San Francisco or Silicon Valley stayed in California. While many companies have downsized their offices, big tech companies such as Google, Meta and Apple are building expansive new campuses and signing new leases. Networking is coming back, with startup cohorts returning and conferences and meetups resuming (Plug and Play’s recent summit was attended by 2,300, including 1,000 from overseas). There’s a palpable desire to reconnect. So for now this one’s neutral.
What about technology — Silicon Valley’s base? Real estate leasing offers one clue. While the market for offices has cooled, demand for R&D and advanced manufacturing space is up. And by the way, biotech is booming with R&D space also at a premium.
Universities such as Stanford, Berkeley, UCSF, UC Davis and UC Santa Cruz are churning out technology and founders without missing a beat. The Bay Area is the top U.S. center for AI research, which over time will impact nearly everything. Per capita patent generation is multiples higher than in other U.S. regions, and Nature ranks the Bay Area as the No. 4 four place in the world for science. Nos. 1 and 2 are Beijing and New York (which are vastly larger), and No. 3 is Boston. Popular destinations for tech nomads show up far down the list, if at all. So this goes solidly in the plus column.
How the Bay Area’s economy fares in the long-term is unclear, and we have difficult issues to address. But reading the tea leaves, the region’s continued primacy as a global technology center looks assured.
Sean Randolph is senior director at the Bay Area Council Economic Institute.
