Demand for Tech Fueling Office Recovery

Reports by Jones Lang LaSalle and Cassidy Turley pinpoint one of the brightest spots in the CRE office space: High-tech firms, through venture capital, are creating better-than-average employment numbers.

September 29, 2011
By Nicholas Ziegler, News Editor

According to a report by Jones Lang LaSalle, customers’ demand for new technology and business’ needs to apply similar technological achievements, such as cloud computing and data storage, has given the tech industry a job-growth rate nearly four times faster than the national average. The growth, as measured from the recession’s trough in February 2010, shows a marked difference: 5.1 percent versus 1.4 percent.

These high-tech jobs, naturally, are clustered around the country in pockets. The best-positioned areas include Boston, Seattle, Portland, Raleigh-Durham and San Diego, but the Silicon Valley and San Francisco Bay areas still lead the pack, taking more than 40 percent of all available venture funding.

So what does that mean for CRE?

“The high tech sector has been a significant contributor to office space demand during the economic recovery here in Greater Boston,” Tamie Thompson, JLL managing director, said. “Net absorption in the area has been positive since early 2010, and rents continue to increase since hitting bottom in Q3 2010. Large public companies are creating corporate campuses where they can tap into Boston’s resources.”

A report by Cassidy Turley echoes that sentiment. “Beyond unemployment growth or current employment levels, we found once consistent factor behind our top performing markets of the last year,” an end-of-summer whitepaper by the real estate services firm said. “Each of the top five markets in our survey was among the leading markets in the U.S. in terms for venture capital raised over the past year.”

But it’s not just venture capital in general that’s driving growth for CRE, especially in the office sector – it’s R&D. In the Silicon Valley market in early 2009, when both offices and R&D markets were contracting, vacancies sat at 19.4 percent and 19 percent, respectively. By the second quarter of 2011, office vacancies had dropped to 17 percent and R&D had fallen to 18 percent. Venture-capital flow, inversely, rose to $2.3 billion in the same time period.

It’s important to note the relative percentages of these high-tech players within the larger market. The JLL report states that 20.9 percent of all employment countrywide is in office-using sectors, while tech is just 1.7 of the same market.

“If you keep an eye on high-tech clusters, growth speed, talent availability and the mobility of high-tech firms, you might pinpoint the next wave and location of growth,” Colin Yasukochi, director of research for JLL’s northwest region, said.