CBRE Americas Research 2018 TECH-30: Tech Sector Driving the North American Office Market

Office Rent Growth on the Rise In “Tech-30” Markets, Fueled by Country-Wide Expansion of Large Tech Firms: 
Strength of traditional tech markets like San Francisco, Seattle, Boston, New York City having a positive spillover effect in growing tech markets across the country

Technology companies based in the top four tech headquarters markets—the San Francisco Bay Area, Seattle, Boston and New York—are expanding into new markets, creating more demand for office space and driving office rent growth in the beneficiary markets, according to CBRE’s annual Tech-30 report, which measures the tech industry’s impact on office rents in the 30 leading tech markets (based on job growth) in the U.S. and Canada.

Together, tech firms headquartered in these four markets have taken more than 25 million sq. ft. of space outside of their headquarters markets over the past five years, led by firms in the San Francisco Bay Area, which accounted for 18 of the 25 million sq. ft.

Nine of the top 10 beneficiary markets (listed below, excluding other top tech headquarters markets) saw rent growth that exceeded the U.S. average of 5.6 percent over the past two years. Eight ranked in the top half of the Tech-30 markets in terms of rent growth.

The top four tech headquarters markets are also feeding each other, with cross-market expansion between the San Francisco Bay Area, Seattle, Boston and New York accounting for approximately 14 million of the 25 million sq. ft. of migration.

The Seattle office market has been the greatest beneficiary of this migration, with San Francisco Bay Area firms taking 3.5 million sq. ft. there over the past five years. This correlates with the growth of Seattle’s high-tech job base, which is up 26 percent over the past two years, surpassing San Francisco in high-tech job growth for the first time in seven years. Accordingly, Seattle’s office rents are up 14 percent over the same two-year period (fourth most among the Tech-30), and net absorption is up 5.2 percent (eighth most among the Tech-30).

“San Francisco Bay Area out-migration has been driven by tech firms’ outsized growth and a combination of scarce office space and a tightening labor market, which has necessitated a more distributed workforce” said Colin Yasukochi, director of research and analysis for CBRE in the San Francisco Bay Area. “By expanding into other markets, these tech firms can tap into new and potentially lucrative business opportunities clustered in other markets, such as media and entertainment in Los Angeles or machine learning and cyber security in Washington, D.C.”

“We expect large tech companies to continue to expand outside their headquarters markets—including further into secondary and even tertiary markets—particularly as space availability in top tech submarkets continues to tighten, driving rents up. Large tech company expansion into smaller markets will help foster innovation clusters, further boosting job creation and creating additional office demand,” Mr. Yasukochi added.

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