Why Silicon Valley’s Tech Bubble Will Burst and Where Innovators Will Go

Photo by Lili Popper (https://unsplash.com/photos/71cd1rWqO8M)

Where is the hottest spot for tech businesses and startups today? When you ask most people, they will likely respond with San Francisco or Silicon Valley. Yes, it is true that the Bay Area has given rise to some of the most renowned names in business. Facebook, Apple, and Twitter have headquarters there, and thousands of other companies got their start in the area.

However, in five years, the answer to that question may have a vastly different response. Instead, the next Facebook or Google could be built on the other side of the country, in the Brooklyn Tech Triangle of New York City. Why could the center of innovation be migrating to the east coast soon?

Rising Cost of Living

Now that the Bay Area has become the mecca for high-grossing companies, the cost of living has surged. According to a report from the real estate agency JLL, California’s San Mateo County has the highest tech wage in the United States, with workers making an estimated $240, 663 per year. In 2014, the average annual earnings for employees in San Francisco increased 12.8 percent to a whopping $176, 275.

Although that sounds like a lot of money, even those that work in the industry are starting to feel the strain. The wages of those working in big San Francisco tech companies are the highest in the country, but the cost of rent consumes 50 percent of their spending.

Rent and Housing Price Surge

The change in rent prices over the last decade or even the last few years is enormous. The last significant surge in rental prices in San Francisco occurred during the “dot-com bubble.” Now, they are much higher than they were then. According to one report, a price for a two-bedroom apartment would cost a little over $1,300 a month in 1980.That same apartment could cost over 5 or 6 times more today.

Bringing in more businesses is generally beneficial for the surrounding communities. However, when there are too many people and not enough housing to accommodate the increase, it becomes a problem. The population in Silicon Valley has reached 7.5 million — that is twice as many people living there than there were 40 years ago. Some community members have started to criticize the tech boom for “gentrifying” the area, making it difficult for those that have lived there most of their lives to afford the price hikes.

Tough Competition for Local Talent

High cost of living isn’t the only roadblock for businesses. Recruiting local talent has become intensely competitive for the tech industry. Many companies reported hiring hundreds of new employees, with nearly every one having multiple offers.

The talent crisis is so tough that many companies are bringing in employees from elsewhere and paying them large sums to relocate. Facebook, for example, recently offered employees up to $15,000 to move closer to their headquarters in Menlo Park.

The Shift is Already Happening

Some companies are already making the move away from the area because of the changing business climate and the challenges that it presents. The ride-sharing service Uber recently purchased office space in Oakland because of the growing expense and limitations in the city. Companies like Pandora and Lyft are following in their footsteps by adding offices in other parts of the United States.

The Brooklyn Tech Triangle: The New Silicon Valley

If the tech bubble in the Bay Area is about to burst, then where will innovators take their business ideas? New York City, particularly the Brooklyn area, is on its way to being the new center of innovation.

In 2013, the Brooklyn Tech Triangle, was formed by a coalition of local organizations with a vision to increase business and innovation in the area. Since then, it has helped grow the economy from $3.5 billion to $5.3 billion. Reports also predict that by 2025, the economy will increase to $15.5 billion with these development initiatives. Local success stories like Etsy and MakerBot are inspiring other entrepreneurs to make the move.

The area is quickly becoming an incubator of tech talent and innovation for a number of reasons. One of those reasons is that it has built a strong support system for entrepreneurs. Former mayor Michael Bloomberg established the We Are Made in NY organization to help innovators in the New York CIty area transform their ideas into successful businesses. Digital, film and media production is the cornerstone of the Made in NY project, and the industry now comprises over 8.7 billion of the local economy.

The community support and opportunities for funding are already present in Brooklyn. Plus, public officials like Mayor Bill de Blasio are partnering with tech companies to promote local education and training opportunities. In 2017, a new Cornell Tech campus will open up in the neighboring Roosevelt Island. Also, Tech Jobs Academy, a 16-week intensive technical training program organized by Microsoft, Tech Talent Pipeline, and CUNY’s New York City College of Technology launched at the beginning of this year. With more tech training opportunities available, local companies will have more talent to recruit.

Unlike other metros that claim to be the next big innovation hubs, NYC already has the foundation and framework to foster technology businesses. With conditions in the Bay Area making it more difficult for innovators to move in, many are looking for a different place to grow their business.The Brooklyn Tech Triangle has emerged as major contender for innovation in the past few years. In the next five, it could be the east coast version of Silicon Valley.

Marcelo Marqueti @mmarqueti