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Dwindling Availability in the Hottest Tech Submarkets Causing Tech Firms to Expand into Downtowns and Tech-Adjacent Submarkets

LOS ANGELES--(BUSINESS WIRE)--Nov. 16, 2017-- The willingness of tech companies to pay a premium for office space in the hottest tech submarkets is spilling over into neighboring submarkets as available space dwindles, according to CBRE’s annual Tech-30 report, which measures the tech industry’s impact on office rents in the 30 leading tech markets in the U.S. and Canada.

As a result, adjacent submarkets and traditional downtowns with skylines—rather than the brick-and-beam buildings that tech companies have preferred—are primed to benefit, creating opportunity for commercial real estate investors.

“Office rents have increased in every primary tech submarket over the past two years, illustrating stiff competition among tenants to locate in talent-rich areas such as Tempe, East Cambridge, Minneapolis’s North Loop and South Orange County, all of which have very low office vacancy,” said Colin Yasukochi, director of research and analysis for CBRE and the report’s author. “If tech companies that are used to paying a premium for space in the top tech submarkets are forced to move to adjacent submarkets to expand, we could start to see significant rent growth in those more traditional markets as well.”

The research found that the top tech submarkets with the lowest vacancy rates are East Cambridge (3.3 percent), Palo Alto (3.7 percent) and Mount Pleasant/False Creek in Vancouver (4 percent) as of Q2 2017. The office rent premium paid by tenants in these markets continues to widen, with average rents for top tech submarkets increasing faster than their broader markets, with an average premium of 16.2 percent.

The CBRE report also sorted markets according to both job growth and rent growth over the past two years.

  • Top Job Growth Markets For the sixth consecutive year, San Francisco was the top Tech-30 market for high-tech job growth; its high-tech job base grew by 39.4 percent over the past two years, while its average asking rent increased by only 7.1 percent. Charlotte (31.6 percent), Pittsburgh (31.4 percent) and Indianapolis (27.8 percent)—all low-cost markets—had the next highest job growth rates and rent increases of 16.9 percent, 3.5 percent and 6.5 percent, respectively.
  • Top Rent Growth Markets Double-digit office rent growth was achieved in 13 markets over the past two years, led by Orange County (23.3 percent), Nashville (21.2 percent), Atlanta (17.6 percent) Charlotte (16.9 percent) and Silicon Valley (16.8 percent).

About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.

Source: CBRE Group, Inc.

CBRE Group, Inc.
Corey Mirman, 212.984.6542
corey.mirman@cbre.com
or
Aaron Richardson, 212.984.7126
aaron.richardson@cbre.com