Tech Industry Demand For Space Driving Office Rents Up
Tech employment growth is still helping spur office rent growth in major tech markets, but rents also are rising in smaller tech markets where employers now are seeking new talent. That is one of the conclusions of the latest CBRE Scoring Tech Talent report, which the real estate giant publishes annually.
Office rents are highest in New York, the San Francisco Bay Area, Washington, D.C., Los Angeles and Miami, but rents are growing the most (over the last five years) mostly in smaller tech markets. Orange County experienced the most growth in office rents during that period, with direct asking rents up 50%, according to the report.
Next in rental growth are Portland, Oregon (up 44%), Nashville, Tennessee (up 41%), the Bay Area (up 40%) and Charlotte, North Carolina (up 40%).
Tech is driving much of that growth, with an outsized impact on office markets because the industry accounts for more leasing than any other. In Q1, for instance, 20% of major office-leasing activity involved a tech tenant, the report says.
Tech growth is driving demand for office space in secondary markets, just as it has in primary markets in recent years. As tech talent in major tech markets is in shorter supply than ever, tech companies are looking to hire in new tech markets, according to CBRE.
Most of the tech jobs are still in major markets, such as the Bay Area, Toronto and New York City, the report says.
But the quest for tech talent is stronger than ever in such markets as Tucson, Arizona, with a 90% increase in tech jobs over five years; Hamilton, Ontario, with a 52% gain; Waterloo, Ontario, with a 40% gain; and Las Vegas, which has seen a 35% gain in tech jobs.
“Many ... markets offer quality labor pools that are untapped and have high growth potential," said CBRE Director of Research and Analysis Colin Yasukochi, who co-authored the report.
"These markets can be ideal for small-scale operations, startups and tech jobs with non-tech employers like banks, media and services firms that comprise nearly two-thirds of the tech labor pool," Yasukochi said.
The tech industry’s growth has also left little available office space in many large and small markets, with vacancy in single-digit percentages in the tightest markets, such as 4.6% in Madison, Wisconsin, 4.7% in Vancouver, 5.9% in Charlotte and 6.1% percent in the Bay Area.
Tech is having an impact on apartment rents as well, the report notes. In Sacramento, a popular market for tech companies fleeing the higher costs of the Bay Area, apartment rents are up 44% compared with five years ago, the largest increase for any market in the report.
The other top markets for apartment rental growth, which also happen to be growth markets for tech, are Atlanta (up 30%), Vancouver (up 30%), Orlando, Florida (up 29%) and Portland, Oregon (up 20%).
CBRE ranks markets on its Tech Talent Scorecard based on 13 metrics, including tech talent supply, concentration, cost, completed tech degrees, industry outlook for job growth, and market outlook for both office and apartment rent cost growth. The top cities in this year’s scorecard are all large markets with a tech labor pool of more than 50,000 each.