“Unprecedented” VC Investment Boom Bodes Well for Space Demand

The second quarter of 2021 saw $166.4 billion of new venture capital (VC) raised globally, bringing year-to-date totals to $315.3 billion. If the current pace of investment continues, more than $630.6 billion in funds will be raised in 2021, or nearly four times the pre-pandemic norm. VC investment’s current pace is “simply unprecedented,” Newmark says in a new report produced by managing director Garrick Brown, and there are clear implications for real estate owners and operators. 

“The VC industry serves a vital role by funding entrepreneurship and innovation,” Brown reports. “While the popular perception is that VC funding is about initial research and development (this certainly does occur), most of it goes to support companies as they commercialize their innovations and grow. VC provides fixed assets and working capital for all manners of infrastructure, from manufacturing to marketing—and critically, to employment and real estate.” 

IT remains the dominant category, accounting for 36.8% of all VC investment. However, Brown says funding has become far more diversified, as new technology-driven verticals emerge across various industries. B2C and life sciences have gained the most market share, accounting respectively for 19.8% and 20.0% of global VC investment. 

Nowhere globally has the surge in VC funding been greater than in the U.S., Brown writes. This wave of funding has impacted every region of the U.S., with a few new hot spots emerging. Austin and Miami have both seen outsized growth. However, the traditional centers of VC funding, such as the Bay Area, New York and Boston, have continued to dominate in terms of market share. 

“The pie is bigger, and new hands reaching for a piece, but the largest slices are going to familiar places,” according to Brown. 

Under normal circumstances, Brown reports, “these numbers would suggest a commercial real estate boom in the making, at least within markets where there is a heavy tech focus. They still do, though it will be tempered by the pandemic.” 

Without deeply granular data to analyze, since VC-backed firms are private, it’s difficult to correlate the impact of funding to commercial real estate demand in an easy formula. Firms may use VC funds in any number of ways, or across multiple geographies. “But in most cases, hiring is a priority and employment growth translates into real estate demand,” reports Brown. 

Brown and his team analyzed 500 U.S. firms that received VC funding since April 2021 and cross referenced them with current job postings on LinkedIn. The sample set raised $44.9 billion and had 22,582 job openings. Assuming 150 square feet per worker, that equals 3.4 million square feet of demand, or roughly a minimum of 7,500 square feet of demand for every $100 million raised.

“At 200 square feet per worker, it equates to 10,000 square feet of demand per $100 million raised,” writes Brown. “But we believe these numbers are considerably lower than the reality.”