by Brianna Crandall — August 8, 2018 — Companies in pursuit of highly skilled tech talent — spanning every industry today — might be in for more sticker shock; so might their facilities managers (FMs) who are keeping a watch on office rents and total real estate costs. Combined talent and occupancy costs are up by as much as 12.5% over last year as competition for tech talent has heated up, according to global commercial real estate services and investment firm CBRE’s sixth annual Scoring Tech Talent report.
Taking both talent and real estate costs into consideration, the “typical” 500-person tech company needing 75,000 sq. ft. of office space can expect a total annual cost to range from $27 million in Montreal, the least expensive market, to $59 million in the San Francisco Bay Area, the most expensive market. Just a year ago, the total costs ranged from $24 million in Vancouver to $57 million in the San Francisco Bay Area.
While value is a key driver when it comes to choosing an office location, companies are willing to pay a premium to access the highest quality tech talent, as strong demand for skills such as software development, hardware engineering and information security is outpacing supply.
Canadian markets were among the best-value markets, due in part to the strong US dollar, with high-quality talent in Toronto, Vancouver, Montreal and Ottawa adding a relatively low amount to occupancy costs. In the US, Indianapolis, Pittsburgh and Detroit were strong value markets.
Tech Talent Scorecard
The top five markets for tech talent in 2018 were the San Francisco Bay Area; Seattle, WA; Washington, DC; Toronto (the first time a Canadian market made the top five) and New York.
The Tech Talent Scorecard is determined based on 13 unique metrics, including tech talent supply, growth, concentration, cost, completed tech degrees, industry outlook for job growth, and market outlook for both office and apartment rent cost growth. The top 10 cities on the Tech Talent Scorecard were all large markets, each with a tech labor pool of more than 50,000.
| 2018 RANK | MARKET | SCORE |
| 1 | SF Bay Area, CA | 84.72 |
| 2 | Seattle, WA | 74.46 |
| 3 | Washington, D.C. | 67.70 |
| 4 | Toronto, ON | 65.38 |
| 5 | New York, NY | 64.04 |
| 6 | Austin, TX | 60.17 |
| 7 | Boston, MA | 58.14 |
| 8 | Raleigh-Durham, NC | 57.95 |
| 9 | Atlanta, GA | 57.76 |
| 10 | Denver, CO | 56.72 |
Top momentum markets
Tech job growth gained momentum in 23 of the 50 markets. Ottawa and the San Francisco Bay Area comprise the largest concentrations of tech talent on the list at 11.2% and 9.8%, respectively — both more than three times the national average of tech talent density.
CBRE’s report evaluated large (50,000+ labor pool) and small markets (less than 50,000 labor pool) separately. The largest markets increased their tech labor pools by 15-52%, including the San Francisco Bay Area (31%), New York (17.2%), Toronto (51.5%) and Dallas Ft. Worth (15.3%). Seattle also grew at a rapid pace, with a 19.4% increase, and Atlanta saw a 34.7% increase in tech talent.
Charlotte, which moved from a small market to a large market this year, grew the fastest of any of the 50 markets in the report, with its tech talent pool increasing by 58.8%. Smaller tech talent markets grew at a fast pace as well. Nashville grew at the fastest rate among the small markets at 43.3%, followed by Madison, Wisconsin, at 39.5% and Jacksonville, Florida, at 38.9%.
Colin Yasukochi, director of research and analysis for CBRE in the San Francisco Bay Area, pointed out:
The highly competitive and supply-constrained market for tech talent, along with advanced communications infrastructure, has accelerated the expansion of tech talent pools into smaller markets, such as Madison and Nashville. These previously under-utilized regions are gaining demand for tech talent from both start-ups and established companies. Accordingly, demand for commercial real estate to accommodate this growing workforce is on the rise.
Commercial real estate market impact
According to the report, the high-tech industry has added 682,000 jobs in the past five years and has been the top driver of office leasing activity during that time. The high-tech industry’s share of major leasing activity nationwide increased to 20% in 2018 — almost double what it was in 2011 (11%) — and is the largest single share of any industry.
Accordingly, office rents are up and vacancies are down in many of the tech talent markets, with the biggest impact in the most tech-concentrated areas where tech clusters have formed or are forming. In top markets, where tens of thousands of workers have been added in the past five years, significant demand for office space raised rents to their highest levels and pushed down vacancy rates to their lowest levels.
Yasukochi continued:
Tech employment growth has a multiplier effect that positively impacts economic growth, which in turn can have an immense impact on commercial real estate. Rent growth is most prominent in the large tech markets, with office rents 50% higher than five years ago in the San Francisco Bay Area and Orange County. But the decrease in vacancy rates is present across both large and small tech markets. Vacancy rates in Madison, Vancouver and Charlotte are the lowest of the top-50 tech talent markets, with large markets like New York, Toronto and the San Francisco Bay Area not far behind.
The 10 markets with the most significant five-year rental rate growth include:
| MARKET | ANNUAL GROSS DIRECT AVERAGE ASKING RENT | OFFICE RENT 5 YR. GROWTH |
| Orange County, CA | $34.80 | 52% |
| Bay Area, CA | $62.73 | 50% |
| Portland, OR | $28.77 | 38% |
| Nashville, TN | $26.09 | 37% |
| Raleigh-Durham, NC | $25.71 | 34% |
| Dallas/Ft. Worth, TX | $24.25 | 34% |
| Ft. Lauderdale, FL | $32.94 | 32% |
| Atlanta, GA | $26.25 | 32% |
| Charlotte, NC | $26.31 | 31% |
| San Diego, CA | $35.07 | 31% |
View the full Scoring Tech Talent in North America 2018 report on the CBRE website. To view individual market statistics and rankings, including rankings on the Scorecard, access CBRE’s Tech Talent Analyzer.
