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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