Fewer Mega Deals Could Impact Office Space Demand
Venture funded companies have remained private for longer during the current economic growth cycle, according to Goldman Sachs. This resulted in an unprecedented rise of mega financing deals, defined as $100+ million, that started in 2014 and reached a peak in 2018 when this category totaled $54 billion. Mega deals dropped 20% in 2019, but only impacted total funding volume in the San Francisco Bay Area and Boston. On the other end of the spectrum, annual funding volume has remained very consistent since 2014 for smaller (<$10M) and medium ($10M-$49M) sized deals, providing the necessary funding to fuel the seeds of innovation across U.S. markets.
Office space demand from the tech industry, which is highly correlated to venture capital funding, increased from 20% of major U.S. leasing activity in 2018 to 22% in 2019. Private, venture capital-backed tech firms accounted for about 25% of total office leasing by the tech industry last year. While the availability of venture capital is abundant, financial market conditions tightened in late 2019. This has placed greater scrutiny on revenue growth and spending plans, potentially moderating tech-driven office space demand in 2020 supported by venture funding.