by Brianna Crandall — September 18, 2015—Businesses looking for office space in the nation’s hottest technology markets should expect to pay a hefty premium in many of the top tech cities, according to a new research report by global commercial real estate (CRE) services and investment firm CBRE Group.
The report, which analyzes the top 30 tech cities across the United States and Canada, showed an aggregate rent premium of 11% across all 30 markets—a number that jumps significantly higher in the hottest tech submarkets. Notably, Boston’s East Cambridge is outperforming the rest of North America with rent premiums of 87%, followed by 85% in Santa Monica (Los Angeles) and 73% in Mountain View (Silicon Valley).
San Francisco ranked highest in both job growth and office market rent growth among the top tech markets.(Click on image to enlarge)
If that is too steep for companies who want to be in a market with access to tech talent, CBRE found that discounts can still be found in some emerging submarkets including Washington D.C.’s Reston/Herndon (-23%), St. Louis Central Business District (CBD) (-17%) and Northeast Charlotte (-12%).
“With rental rates less than the average market rate and a rising pool of talent, these emerging submarkets present opportunity for companies that can’t justify the premiums we’re seeing in some of the more established tech markets, ” said Colin Yasukochi, director of research and analysis for CBRE. “Furthermore, most of these emerging tech submarkets are recording positive—and in some cases strong—rent growth, creating opportunities for real estate investors in these markets, as well.”
CBRE Research analyzed the Tech-Thirty markets in terms of office-demand-generating high-tech software/services job growth and the resulting office rent growth. The top 10 markets can be seen in the charts on this page.
According to the report, the high-tech software/services industry has created 730,000 new jobs since 2009 and was the leading driver of U.S. office market demand, accounting for 20% of major leasing activity, through the second quarter (Q2) of 2015. In many leading tech markets, the sector is even more dominant: in Silicon Valley, Austin, San Francisco and Seattle, high-tech companies accounted for 88%, 63%, 62% and 60% of major leasing activity through Q2 2015, respectively.
Yasukochi expects consumer demand and a growing number of high-tech integrated businesses to keep the industry strong in the years ahead and provide further support for office markets in the Tech-Thirty. From an investor’s perspective, Austin, Salt Lake City, Phoenix and Portland offer further growth potential and are attractive to occupiers. Raleigh-Durham, Dallas/Ft. Worth, Charlotte and Nashville offer the best combination of low office rents and a growing high-tech labor pool.
The report also found a strong link between high-tech funding, high-tech employment and office market growth. A robust correlation between late-stage venture capital (VC) funding and high-tech hiring has important implications for the office market. Large late-stage funding deals allow companies to scale operations quickly, and expand their employment base, driving large office expansions and leasing transactions, explains CBRE. Investors’ willingness to fund technology companies at rising valuations will be critical for continued growth in high-tech hiring and office space demand in primary tech markets, concludes the report.
The full Tech-Thirty 2015: Measuring Tech Industry Impact on Office Markets in North America report is available on the CBRE Web site.
