Tech Companies Account for One-Fifth of US Office Leasing Activity – CoStar

Industry Spreads Across the Country in Search of Talent.

While all eyes have been on Amazon’s astronomical growth and it’s imminent decision on where to locate a second headquarters, the rest of the technology community has been gobbling up space to establish offices near hubs of talented workers across the country so quickly in the past five years that the industry has almost doubled its national real estate footprint.

Tech firms now make up 20 percent of direct office leasing activity by square footage nationwide, according to Colin Yasukochi, director of research and analysis in brokerage CBRE Group Inc.’s San Francisco office.

That’s nearly double the 11 percent of leasing activity accounted for by tech companies across the country that CBRE recorded when it began tracking the metric five years ago, Yasukochi said.

“The No. 1 reason why they tend to expand in a particular location has to do with the tech workforce in those markets,” he said. “It drives their decisions because the market is very tight. So they have to go where the talent is rather than expect people to relocate.”

Silicon Valley is unquestionably the dominant market for technology companies, with half its 300 million square feet of office space occupied by tech businesses. That’s 2.5 times more than the industry’s occupancy in the area in 2010.

But smaller markets across the country are attracting the attention of some of tech’s best-known names, he said.

In addition to established and growing tech hubs like Portland, Oregon, and Charlotte, North Carolina, technology companies are headed to cities such as greater Phoenix, Arizona; Salt Lake City, Utah; and Nashville, Tennessee. Even Rust Belt cities like Indianapolis and Pittsburgh are expected to grow in tech sector activity in coming years, as are large Canadian cities like Toronto, Montreal, and Vancouver, according to CBRE.

While there is a large price deferential between these markets and Silicon Valley, tech giants are not in search of cheaper real estate, Yasukochi said. These cash-rich companies are undeterred by pricey properties. Instead, they’re after a talented workforce that isn’t interested in moving for work.

The average lease rate in the Phoenix area, which is home to offices for companies including GoDaddy, LifeLock and RetailMeNot, is $25 per square foot on a full-service lease – far less than the $72 per square foot in Silicon Valley.

Of course, an influx into a market of tech companies with plenty of cash to spend on upscale offices has the potential to drive up lease rates across the board, but only if the conditions are already tight, Yasukochi said.

Areas that already have low vacancy when a tech company signs a large lease could see rates go up as office space is further constricted. Cities with plenty of space to go around won’t feel the effect on lease rates, he added.

Further growth of tech real estate depends on the overall trajectory of the industry, which is unpredictable, Yasukochi said, but there’s no reason to think tech’s share of the commercial real estate pie will decrease in the near term.

“We’ll continue to see growth that’s higher than other industries,” he said. “I expect that the share would increase, but we just don’t know by how much.”

Written by:

Molly Armbrister, Denver Market Reporter  CoStar Group