Tech finds highly competitive options in Canada

Tech finds highly competitive options in Canada

Lower labour costs and deep talent pools underpin opportunities for growth
Monday, July 31, 2023
By Barbara Carss

Canadian cities present highly competitive options for tech startups and firms looking to expand their North American base. CBRE’s recently released annual ranking of the leading 50 markets for fostering tech employment includes eight of Canada’s largest urban centres, with Toronto, Vancouver, Montreal, Ottawa, Waterloo Region and Calgary all placed in the top half of the list.

Scores are derived from a combination of factors that CBRE analysts identify as lures for both employers and tech workers. The San Francisco Bay area and Seattle emerge decisively in the first and second spots with scores of 82.6 and 71.4 respectively, but a much slimmer range of gradients separates the next four positions — New York, Washington D.C., Toronto and Austin — with a one point difference between the number three and number six scores. Notably, Toronto’s 5th place tally of 66.5 is just 0.2 behind Washington and 0.1 ahead of Austin.

The other Canadian cities range in the rankings from Vancouver in 8th to Edmonton at 39th. However, all are bunched together as the eight most affordable based on combined wage and office rent costs. The U.S. markets slotted ahead of Toronto come in as the four priciest, whereas, at 44th, Toronto isn’t even the costliest in Canada. (Calgary takes that title.)

“An office here could cost half of that compared to other North American markets when thinking real estate and labour combined,” observed Liz Nucci, CBRE’s vice president of office leasing in Toronto, during a recent online briefing in conjunction with the tech scorecard release. “In addition to being affordable, Canada has favourable immigration policies that bring in skilled workers and, in turn, expedite permanent residency. And we have incredibly strong universities, including the University of Toronto and the University of Waterloo, which attract people here from around the globe and produce that sought-after talent.”

For the purposes of the rankings, tech talent is defined as roles related to: software development and programming; computer support; database and systems technology and engineering; and computer and information systems management. As of 2022, about 39 per cent of tech workers in Canada were employed in companies for which tech is the core business. The larger share were embedded in a range of other sectors, including nearly 12 per cent in finance, insurance and real estate (FIRE), nearly 10 per cent in government and 7.5 per cent in professional, scientific and technical services.

From a career launch and mobility perspective, Vancouver, Calgary and Waterloo posted the highest growth rates for tech jobs among the 50 North American markets during the six-year period from 2017 to 2022 — ranging from 69 per cent to 51.5 per cent — while Toronto added the second highest volume of jobs, generating 63,800 new positions. All Canadian markets except Waterloo saw new job growth outpace the number of tech-related graduates from local post-secondary institutions, while just six of the 42 U.S. cities did.

Pandemic disconnects job growth from office demand

Tech has been one of the strongest employment engines on both sides of the border since the COVID-19 pandemic hit, spurring 150,000 new jobs in Canada and 610,000 in the U.S. since 2020. Given differing populations, Canada boasts the more impressive growth rate of 15.7 per cent versus 11.4 per cent in the U.S.. Approximately 1.1 million tech workers now account for 6.5 per cent of Canada’s total workforce, while about 5.9 million tech workers in the U.S. make up 4 per cent of the workforce there.

Canadian tech companies also have a lower quotient of non-tech support positions, at about 33 per cent, than in the U.S. where nearly 47 per cent of employment in core tech companies is in sales, marketing, financial and administrative roles. The latter group has suffered about three quarters of job losses due to tech sector layoffs in 2022-23.

As well, recent job cuts at many of the tech companies come after a hiring frenzy in the preceding two years. Participating in the online briefing, Colin Yasukochi, executive director of CBRE’s tech insights division based in San Francisco, suggested that non-tech companies and small and mid-sized tech firms are scooping up many of the briefly unemployed tech workers.

“There is a significant difference between tech and non-tech company hiring trends. Big tech companies’ job postings peaked five months earlier than non-tech employers and they declined much more steeply,” Yasukochi said. “It’s still not easy to hire and meet demand for software engineers.”

Connections with the demand for office space are less clear, but there is a general perception that the sector’s work-from-home rates are easing down from the 46 per cent level registered in 2021. Yasukochi notes that about 19 per cent of tech job postings now promise the potential for remote work. Meanwhile, return-to-work is noticeably contributing to leasing deals in Silicon Valley, which, Chris Shepherd, executive vice president in CBRE’s San Jose office, tallied at more than 100 in each of last few quarters.

“These leases are made up from two types of companies,” Shepherd recounted. “The first type decided to work from home and give up an office space, and now they’re coming back to the office. The second is new startup companies.”

Even so, CBRE has shrunk the real estate footprint for its theoretical comparison of major operating costs across the 50 markets. Previously, it was set at 75,000 square feet to accommodate a 500-person tech enterprise, but this has now been reduced to 60,000 square feet. When lumped in with average wages for 266 tech workers, 162 non-tech support workers and 72 management staff, office space now accounts for less than 6 per cent of employers’ assessed expenses in most of the top-scoring markets.

Value return high on Canadian labour expenditures

Although average office rents in Vancouver and Toronto surpass those in many U.S. markets, Canada’s consistently low-end labour costs provide dramatic counter ballast. The overall package of operating costs are pegged at about USD $38.1 million (CAD $50.3 million) in Toronto and USD $37.5 million (CAD $49.5 million) in Vancouver versus USD $78.8 million (CAD $104 million) in the San Francisco Bay area, USD $62 million (CAD $81.8 million) in Seattle and USD $60 million (CAD $79.2 million) in Washington, D.C.

The scorecard also assesses quality of tech talent based on each market’s concentration of software engineers with at least three years of working experience who had graduated from one of the 25 top-ranked computer science schools in North America (including 20 in the U.S. and five in Canada). By this metric, Waterloo, Vancouver and Edmonton were deemed to provide the best value for quality and cost of labour of the 50 markets.

Despite lower tech wages in Canada, the ratio of average rental housing costs to average earnings is generally narrower than in most of the U.S. cities. Tech workers from abroad may also prioritize other considerations above salaries, as is perhaps seen in the response to Canada’s recently introduced visa program for holders of H-1B specialty occupation visas in the United States, which achieved its target of 10,000 applicants within just days of opening on July 16.

Under U.S. immigration policies, H-1B visa holders who lose their jobs must secure new employment within 60 days or leave the country. Canada is promising a path to permanent residency and will initially also provide temporary residence visas for their immediate family members.

“This could really help position Canada as a stable country to establish themselves in, and one that the best talent should continue to consider,” Nucci said. “I would say this reflects quite well on our attractiveness and why workers should come here.”

Yasukochi characterized the program as complementary rather than a brain drain risk for large tech companies, often headquartered in Silicon Valley or Seattle, that have operations in both countries. That should provide flexibility for employees currently holding H-1B visas to relocate to Canada fairly seamlessly.

“In theory, a lot of the people who are on H-1B visas can keep their same job so that’s highly beneficial,” Yasukochi maintained. “It also allows these companies to tap into an even greater talent pool that could potentially wind up in Canada.”

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