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Dwindling Availabilities Push Expansion into Downtowns, Tech-Adjacent Submarkets

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. That trend presents an interesting opportunity for commercial real estate investors to make moves in adjacent submarkets and traditional downtowns with skylines.

CBRE’s Colin Yasukochi, director of research and analysis and the report’s author, says, “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, AZ, East Cambridge, MA, Minneapolis’s North Loop and South Orange County, all of which have very low office vacancy.”

The research found that the top tech submarkets with the lowest vacancy rates are (as of Q2 2017) East Cambridge (3.3%), Palo Alto (3.7%) and Mount Pleasant/False Creek in Vancouver (4%). 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%.

That figure jumps substantially for markets at the top of the Tech-30 list, including East Cambridge (120%), Palo Alto (71%) and Santa Monica (92%). Conversely, several emerging tech submarkets have rent discounts, including Hillsboro, OR (-19%) and Northeast Charlotte (-18%).

From an investor’s perspective, tech markets that are attractive to occupiers and offer the best combination of low office rents and a growing high-tech labor pool, thus presenting the greatest growth potential are: Portland, OR, Raleigh-Durham, Dallas/Ft. Worth Charlotte and Nashville.

San Francisco was the top Tech-30 market for high-tech job growth for the sixth consecutive year. Its high-tech job base grew by 39.4 % over the past two years.

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About Dennis Kaiser

Dennis Kaiser is Vice President of Content and Public Relations for Connect Commercial Real Estate. Dennis is a communications leader with more than 30 years of experience including as a journalist and in corporate and agency marketing communications roles. He is responsible for Connect’s client content operations and is involved in a range of initiatives ranging from content strategy, message development, copywriting, media relations, social media and content marketing services. In his most recent corporate communications roles, he led a regional public relations effort across Southern California for CBRE, played a key marketing role on JLL’s national retail team, and was responsible for directing the global public relations effort at ValleyCrest, the nation’s largest commercial landscape services company. In addition to his vast commercial real estate experience, Dennis has worked on communications and launch strategies for a number of residential projects such as Disney’s Celebration in Florida, Ritter Ranch in Palmdale California (7,200 homes, 22,000 acres), WaterColor in Florida and PremierGarage in Phoenix. Dennis’s agency background included firms such as Idea Hall and Macy + Associates. He has earned an outstanding reputation with organization leaders as a trusted advisor, strategic program implementer, consensus builder and exceptional collaborator. Dennis has developed and managed national communications programs for Fortune 500 companies to start-ups, both public and private. He’s successfully worked with journalists across the globe representing clients involved in major-breaking news stories, product launches, media tours, and company news announcements. Dennis has been involved in a host of charitable and community organizations including the American Cancer Society, Easter Seals, BoyScouts, Chrysalis Foundation, Freedom For Life, HOLA, L.A.’s BEST, Reach Out and Read, Super Bowl Host Committee, and Thunderbirds Charities.