Hottest Tech Markets Have a Price

CBRE ranks America’s top tech cities and what it costs to work there.
Morales

Erin Morales, CBRE

By Keith Loria, Contributing Editor

A new report by CBRE titled “Tech-Thirty 2015” revealed that businesses looking for office space in the nation’s top tech markets should expect to pay a hefty premium as high demand and limited supply have led to rent growth in many markets.

The report looked at the top 30 tech cities across the U.S. and Canada, and showed an aggregate rent premium of 11 percent 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 percent, followed by 85 percent in Santa Monica (Los Angeles) and 73 percent in Mountain View (Silicon Valley).

When it comes to tech jobs, the report shows that San Francisco, Phoenix and Austin lead the way, with the latter experiencing a 33 percent growth in tech talent in the last two years. This is due in part to the attention of technology executives from around the country for the SXSW Interactive Festival that happens every spring. In 2015, more than 33,000 people attended the technology-focused event. Austin also came in as the number one city for startup activity on the 2015 Kaufmann Index: Startup Activity.

“A vibrant landscape of high-tech companies is developing in Austin, specifically in the urban core, because they have access to a rapidly maturing network of capital sources, accelerator groups like Capital Factory, TechStars and DreamIt Ventures, co-working options and quality tech talent,” Erin Morales, CBRE’s senior vice president & co-founder of CBRE’s technology and media practice, told Commercial Property Executive. “Tech firms are more often choosing downtown Austin, despite the higher cost of entry, because it has many of the amenities desired for recruiting and retaining talent.”

Austin’s walkability, live music, numerous restaurants and retail are all key attractant of the city. Additionally, tech executives appreciate the ability to easily network with their peers nearby. According to Morales, it’s not uncommon to run into a software engineer, CFO or even a funding source on a quick walk to grab coffee or lunch.

The report shows that 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 percent of major leasing activity, through the second quarter of 2015.

Overall, 16 markets posted double-digit rent growth over the past two years, led by San Francisco (31 percent), Silicon Valley (28 percent), Raleigh-Durham (23 percent), San Francisco Peninsula (21 percent) and Vancouver (18 percent).

According to Morales, from an investor’s perspective, Austin, Salt Lake City, Phoenix and Portland offer further growth potential, based on findings from the report. These markets are also attractive to occupiers, although Raleigh-Durham, Dallas/Ft. Worth, Charlotte and Nashville exhibit the best combination of low-office rents and a growing high-tech labor pool.