EMPLOYMENT | LEASING | FINTECH
Within this employment section, we have broken finance & banking and insurance down into three different time periods. While pre-pandemic and year over year (YoY) technically fall within the same timeframe as the last five years, ‘the last five years’ provides an overview of everything that has happened from Q3 2017 to Q3 2022; ‘pre-pandemic’ compares employment levels observed in the quarter right before COVID-19 sanctions and shutdowns became commonplace (giving reference to how the pandemic has impacted the sector); and ‘YoY’ shows the same period last year versus now to provide context as to how the sector has been behaving most recently.
Finance & Banking
Last five years
Finance & banking job creation in many Sunbelt markets, where employers have focused expansionary efforts, has largely outpaced both Gateway markets and the U.S. average from Q3 2017 – Q3 2022. In fact, six out of the 15 largest U.S. and Canadian markets for finance & banking employment in Q3 2022 are in the Sunbelt and have achieved five-year annualized growth rates ranging from 6.1% in Charlotte to 0.7% in Houston. The United States saw 1.0% annualized growth nationally during the same period adding 155,000 jobs over the five-year period, bringing the total to nearly 3.8 million jobs.
Gateway markets produced lackluster growth figures with all six markets falling below the U.S. average as San Francisco fared best out of the group with an annualized growth rate of 0.7% while Los Angeles represents the bottom end of the range with a contractionary rate of -1.8%. New York City was the only other gateway in positive territory at 0.5% over the five-year period while Chicago (-0.2%), Washington, DC (-0.3%) and Boston (-1.0%) produced negative results.
Canadian markets, nationally, have grown an average of 3.6% from Q3 2017 – Q3 2022 adding nearly 81,000 jobs, bringing total employment in the sector to 615,000 in Q3 2022. Toronto, with the second highest concentration of finance & banking jobs in North America, saw 3.8% annualized growth in industry-related employment over the five-year period. Montreal, another major Canadian employment center for the industry, saw annualized job creation reach 4.9% over the same period as the number of jobs grew from 76,000 in Q3 2017 to 92,000 in Q3 2022.
Pre-Pandemic & YoY
Employment growth was primarily concentrated in smaller to mid-size finance & banking markets among the top 10 markets for job growth during the pandemic from Q1 2020 – Q3 2022. Out of the 10 fastest growing markets during this period with more than 5,000 employees, 70% were in Canada. St. Catharines/Niagara topped the list with employment growing 94.4% throughout the pandemic as jobs rose from 3,697 jobs in Q1 2020 to 6,992 in Q3 2022 while Canada saw employment in the sector grow 8.5% over the same period nationally. Other Toronto-adjacent markets in Canada also saw double-digit job growth in the sector with Hamilton (+30.8%), Oshawa (+25.3%), and London (+20.8%) all appearing in the 10 fastest growing North American markets for finance & banking employment. The three markets in the U.S. that made the top 10 include Provo, UT (+40.4%), Columbia, MO (+25.9%) and Indianapolis (+20.5%) which all grew at a much faster rate than the U.S. (+3.1%) during the period.
The majority of the 10 fastest growing markets YoY were local to the United States with Canadian markets taking four spots. St. Catharines/Niagara again topped the list with a 54.8% YoY gain in jobs while Indianapolis followed at +16.0% YoY. Small- to mid-sized market prevalence appeared on the YoY list as well with the only major market in the top 10, Toronto, growing jobs by 8.9% over the year ending in Q3 2022. Sunbelt markets comprise two fifths of the list as Greenville, SC (+7.5%), Knoxville, TN (+6.0%), Tulsa, OK (+5.9%) and Pensacola, FL (+5.6%) all saw above average gains for the year.
Last five years
Like the finance & banking sector, job growth in the employment sector has been primarily concentrated in U.S. Sunbelt markets over the five-year period ending in Q3 2022. However, Canada saw a higher annualized growth rate than the U.S. at 4.0% nationally from Q3 2017 – Q3 2022 vs. 1.6% in the U.S. over the same period. Out of the 15 largest insurance employment centers in North America, Tampa grew the fastest at a 7.5% annualized rate followed by Phoenix with an annualized rate of 6.5% over the five-year period. Further cementing the prevalence of Sunbelt employment growth, Dallas (+6.3%), Houston (+4.4%), Atlanta (+4.2%), Miami (+4.1%), and San Antonio (2.7%) also saw job growth outpace the U.S. average while the only non-Sunbelt U.S. market in the top 15 that outpaced the national average was Chicago at 2.3%.
Small- to mid-sized markets with less than 20,000 jobs captured the lion’s share of job growth, on a percentage basis, from Q1 2020 to Q3 2022 with Montreal being the only larger market to make the list of the 10 fastest growing insurance markets in the U.S. and Canada. Hamilton, ON topped the list with a 29.7% employment increase from Q1 2020 – Q3 2022 followed by four additional Canadian markets, comprising the five fastest growing markets in the U.S. and Canada. American markets that made the list were all located in the Sunbelt region with Lakeland, FL expanding by 16.4% followed by Raleigh/Durham (+14.0%), Las Vegas (+13.3%) and Columbia, SC (+12.3%).
Pre-Pandemic & YoY
Year-over-year figures shifted toward a U.S. majority among the 10 fastest growing markets, much like what was seen in the finance & banking sector. Winnipeg saw 8.2% growth in employment YoY outpacing all other markets in the U.S. and Canada while Halifax (+6.4% YoY) and Toronto (+6.2% YoY) also appeared on the list, albeit further down. U.S. markets that appeared in the 10 fastest growing markets YoY were entirely concentrated in the Sunbelt with Tampa leading the U.S. at 8.1% YoY immediately followed by Dallas (+7.4%), Raleigh/Durham (+7.3%), Las Vegas (+7.3%) and Columbia, SC (+7.0%).
LEASINGFinance & Banking
Previously strong leasing activity in the North American finance & banking sector experienced a significant slowdown as COVID-19 and its effects began to take hold, seeing a 33.1% decrease from 36.5 million square feet (msf) in 2019 to 24.4 msf in 2020. Leasing activity in 2021, at 25.6 msf, saw a slight increase over 2020 figures as pandemic protocols eased up with employees returning to the office on a mostly part-time basis. However, downward pressure from economic uncertainty in 2022 saw leasing close the year at 24.3 msf of activity in the sector, slightly below 2021, despite a continued return-to-office trend.
Though leasing activity is down overall compared to pre-pandemic activity, large occupiers are still renewing and leasing new space as needed. In 2022, 43 leases over 100,000 sf have been signed—eight of which were larger than 300,000 sf—accounting for 37.6% of all finance & banking leasing activity in the U.S. and Canada this year. Wells Fargo’s 630,000 sf renewal in San Francisco in Q2 2022 was the largest lease signed in the industry this year followed by Bank of America’s 554,000 sf lease in New Jersey; KPMG’s 457,000 sf lease in New York City; PIMCO’s 380,000 sf lease in Los Angeles; Blackstone’s 326,000 sf lease in New York City; JP Morgan Chase’s 315,000 renewal in Houston; Invesco’s 180,000 sf lease in Houston; and Lord Abbett’s 178,000 sf and Morgan Stanley’s 116,500 lease in New Jersey. Most of the leasing activity in the U.S. and Canada can be attributed to expansions, relocations, and newly established offices as 54% of all square feet leased were new leases, the remaining 46% were renewals. Occupiers have shown Class A space to be a clear favorite as Class A leasing has accounted for 88% of new leases and 85% of renewals in 2022.
Though leasing activity has been significantly lower than it was pre-pandemic, banking and finance tenants are still looking for space. Review of our internal Tenants in the Market (TIMs) list in the New York City, Dallas/Fort Worth, Greater Los Angeles, San Francisco, and Chicago markets reveals a total of 9.7 msf of tenants actively looking for space. New York City has the highest degree of future demand among the five markets with 4.1 msf of TIMs. The second highest is Dallas/Fort Worth with 2.6 msf followed by Chicago with 2.2 msf
At the individual market level, leasing activity is not necessarily driven solely by the number of jobs in each area. The ten markets with the largest number of jobs have accounted for 54.0% of finance & banking leasing activity in North America from Q1 – Q4 2022 while the 10 markets with the most leasing activity account for 71.4% of industry related leasing. For example, Philadelphia and Montreal saw less than 1% of industry leasing activity in 2022 yet they rank 6th and 8th, respectively, in the number of finance & banking jobs within their market boundaries. Meanwhile, San Francisco ranked 11th in jobs and 4th in total leasing activity; Washington, DC ranked 13th in jobs and 8th in leasing; Houston ranked 14th in jobs and 7th in leasing; and Denver came in at 19th in jobs and 10th in leasing activity.
The chart below displays the 10 markets with the most leasing activity in 2022 and how their ranking has varied over the last five years. New York City has consistently claimed the number one spot, despite an annualized employment growth rate of 0.5% throughout the last five years, while Dallas/Fort Worth has shown consistent improvement in its ranking. Stamford has shown a positive trend overall as well, rising from 22nd in 2018 to 9th in 2022 . Other markets, like Chicago, which ranked 3rd in 2018 before dropping to 9th in 2019 and then rising to 2nd in 2020, have seen peaks and troughs over the five-year period.
The number of insurance jobs in the U.S. and Canada increased by 180,828 from Q1 2020 – Q3 2022. However, the immediate shift to remote work and subsequent return-to-office plans revolving around hybrid schedules has dampened leasing activity which is reflected by the much higher levels of leasing from 2017-2019 than 2020-2022. Leasing activity in 2019 reached 16.2 msf before sharply declining 37% to 10.2 msf in 2020 as the many externalities associated with the pandemic impacted the continent. 9.8 msf of insurance-related office leasing activity was seen in 2021 while 2022 figures reached 6.7 msf, a 31% decrease YoY. Large leases over 100,000 sf have not been as common in the insurance industry as they have been in finance & banking throughout 2022, however, several leases above 100 ksf have been signed. The largest, a build-to-suit pre-lease for Chubb Inc. in Philadelphia, was 438,000 square feet. The second largest was State Farm’s 214,000 sf lease in Dallas/Ft. Worth, followed by a separate 141,000 sf renewal for Chubb Inc. in Philadelphia and 115,000 sf lease for New York Life in Tampa.
Future demand for space in the insurance industry, which is not nearly robust as the Banking and Finance industry, is seeing with 828,000 square feet across the five TIMs lists previously mentioned. Chicago accounts for more than half of that figure at 505,000 sf followed by New York City at 130,000 sf and Dallas/Fort Worth at 95,000 sf of tenants actively looking for space in the insurance sector. To draw a more lateral comparison of demand between the two subsectors, TIMs across the five markets in the banking and finance industry equate to 40% of 2022 leasing activity in the sector whereas TIMs in the insurance industry in those five markets equal 12% of 2022 industry leasing activity.
Like the finance & banking sector, high job counts in a market did not always equate to strength in office leasing activity for insurance occupiers in 2022. In fact, 2 of the 10 largest employment centers did not fall within the 10 markets with the most insurance-related leasing activity. The disparity between the two was not as significant as seen in the finance & banking sector as the 10 markets with the most jobs accounted for 58.7% of leasing whereas the markets with the most leasing activity comprised 61.4% of square feet leased in the insurance sector in 2022. Among individual markets, New York City has the most leasing activity in 2022 with 979,000 sf followed by Philadelphia (598,000 sf) and Los Angeles (500,000 sf) while Tampa (254,000 sf) and Charlotte (242,000 sf) appeared on the list despite not being one of the 10 markets with the most employees.
Historical rankings for leasing activity in the insurance industry appear to be sporadic in nature with activity seeing large in-market variances YoY. The Los Angeles market remained the most consistent, starting 2018 2nd before rising to 1st in 2020 and then dropping to 3rd in 2022. The New York City market reentered the top 10 in 2019 taking 1st before dropping to 2nd in 2020 and rising back to 1st in 2021 & 2022. Additionally, of the 10 markets on the list in 2022, only half were in the top 10 in 2018 while three markets (Charlotte, Toronto, and Phoenix) entered the top 10 for the first time during the five-year period.
FINTECHCombining the latest technology with finance and insurance services is increasingly important to the finance, banking and insurance industry as the public continues to favor the convenience and efficiency of a digital world. According to KPMG’s ‘2022 KPMG State of Banking Survey,’ which surveyed 100 senior executives at some of the largest banks in the industry, 48% of survey respondents believe that banking will be exclusively digital and virtual with no brick-and-mortar presence within the next decade. In line with this notion, fintech companies have had a large appetite for space throughout the year with fintech firms inking deals in tech hubs throughout 2022. Notable fintech office leases include Fiserv’s 123,000 sf sublease in Short Hills, NJ, and two expansions in New York consisting of 42,000 sf in April and 74,000 sf in July; Elevate Credit Inc’s 74,000 sf lease in Dallas/Fort Worth; and PayPal’s 55,000 sf lease in Austin. Additionally, 60% of companies surveyed report investing heavily in their digital and fintech capabilities while 54% admit they are losing significant market share to nontraditional firms in the industry.
In 2021, the U.S. and Canadian finance, banking, and insurance sector had the second highest concentration of pre-IPO, pre-acquisition unicorns among all industry sectors with the 44 startups attaining a combined market value of $155.7B, according to Statista. Venture capitalists poured nearly three times as much funding into fintech startups YoY, $125B globally in 2021, as the growing firms continue to capture market share from traditional banking outfits. U.S. and Canadian fintech firms were of top interest to investors as they received $59.2B (47.4%) of global fintech venture capital dollars. The fintech sectors of highest interest to venture capitalists across the world were payment companies ($32B), wealth management ($21B), crypto & defi ($19B), and digital banking ($19B) according to dealroom.co.
Payments are a clear market favorite when compared to other fintech sectors by basis of annual transaction value, venture capital funding, and usership, according to data made available by Statista and dealroom.co. Total transaction values for fintech payment firms in the U.S. and Canada reached $1.6T in 2021 and had 292.9M users. The total number of users amongst digital assets, digital investments and neobanking firms were all relatively close in 2021, ranging from 29.6M digital investment users to 34.3M neobanking users. Growth in users forecasted through 2027 shows neobanking usership increasing 142.3% to 83.1M users, digital investment users growing 33.8% to 39.6M, digital asset usership rising 24.2% to 41.1M and the digital payments user base growing 20.3% to 352.4M by 2027.