Greg Matter: Opportunity for High-Tech Firms Spills into Suburban Metros, But Urban Markets Remain Hot

High-tech companies are seeking reasonably-priced labor and real estate near their customers in new frontiers, giving smaller cities and suburbs a second economic wind. JLL’s latest High-Technology Office Outlook reveals how new and unexpected tech hubs like Detroit and Charlotte are getting a piece of the action.

Follow the Hipsters

While the high-tech industry’s growth is driving employers to find new locations for both talent and real estate, traditional high-tech cities are not exactly struggling. Long-standing hubs continue to function as the industry’s economic engines; in fact, seven traditionally high-tech-centric markets represent more than a fifth (21.7 percent) of the 65.4 million square feet of office space under construction across the country. Together, 14.2 million square feet of office space is under construction in the Bay Area, New York’s Midtown South, Boston, Seattle, Portland, and Austin.

Looking beyond the top-tier locations is when the economic story gets interesting.

As rents escalate and space becomes scarce in mainstay markets like San Francisco, Silicon Valley and Manhattan, the lure of more affordable prices have high-tech companies seeking talent and real estate elsewhere. The savings potential is huge: downtown Palo Alto, considered the heart of Silicon Valley, has seen such high demand that the office market is just 3.6 percent vacant with average asking rents at $86 per square foot compared to the national average of $30.

The New Tech Frontiers

The following emerging centers have their own unique appeal to high-tech firms:

  • Detroit – Connected Cars and Ready Labor:  High-tech growth in the Motor City has been expanding thanks to increasing demand for sophisticated vehicle technology. The Motor City also has its fair share of traditional high-tech companies, including Compuware, one of the first companies to move its headquarters from the suburbs to downtown Detroit in recent years. Amazon, Microsoft, Twitter and Google have now joined Compuware in the urban core; Google even announced it would soon launch a Michigan-based fleet of 100 self-driving vehicle prototypes.
  • Charlotte – Fintech Explosion: A financial technology (‘fintech’) start-up culture is rising here, largely serving the back-office functions for large banks. Evidence can be seen in innovation hubs like the Packard Place building in its central business district. As the state continues to dole out incentives, Charlotte will see relocations like Spectra, a fintech firm bringing 250 or more jobs downtown.
  • Los Angeles New Tech, Old Hollywood: Los Angeles’ Westside is home to a burgeoning group of companies at the confluence of high-tech and entertainment. Video game creator Riot Games is likely to be joined soon by Google and advertising mogul RPA, both are actively looking for space nearby.
  • Indianapolis – STEM Central: The talent pool from local universities producing graduates in the mathematics and science (STEM) fields is a main draw for tech companies to Indy. In addition, Indiana has one of the lowest business tax climates in the U.S., making it attractive to young start-ups and high-growth, middle-market high-tech firms. For example, California-based Systems in Motion is adding 400 jobs by 2017 and leasing new space in suburban Kokomo and Carmel.
  • Orlando It’s a Tech World After All: Over the past year, high-tech has become Orlando’s second largest industry with a $14 billion annual economic impact to the metropolitan area. Buildings like the Church Street Exchange – a former mall re-purposed for tech companies – have gone from mostly vacant to more than 90 percent leased in less than a year. Initiatives like the technology accelerator Starter Studio and Orlando’s Digital Main Street program are also cultivating high-tech growth.
  • South Florida – South Beach, South Valley: Miami is getting some buzz as an international high-tech hub, with Microsoft announcing Miami as its first U.S. based Innovation Center at the downtown incubator Venture Hive. However, incubators such as the FAU Research Park in Boca Raton and LAB Miami, located in the burgeoning Wynwood District, tend to feature space that caters more to creative needs. More established high-tech companies with an eye on Latin America are beginning to show interest too.

When start-ups and established high-tech companies look to expand, understanding the dynamics of local markets and innovation clusters is essential. Each city has its own unique qualities that should be aligned with a company’s growth objectives. Companies should look at each location’s talent pool, for example, and ask, how are investment conditions? Do we need space to expand? What are the amenities and lifestyle factors for employees?

Greg Matter is the co-lead of JLL’s Technology brokerage group. He can be reached at Greg.Matter@am.jll.com