By Meghan Hall
The U.S. high-tech industry has grown astronomically since its modest days in the late 1990s and 2000s, and with 1.4 million jobs created since 2010, the sector now accounts for one of every four new jobs requiring office space. Combined with active capital markets, high productivity and rapid economic gains, the high-tech industry’s appetite for commercial real estate has left many markets shocked at the rapidity at which new development is being devoured by tech conglomerates. Due to this demand, tech job growth will continue to correlate strongly with office market rent growth in North America’s Top-30 high-tech metros, reports commercial brokerage firm CBRE, and is a trend that is likely to maintain in the future.
“This is the eighth year of the report; it initially started as a Tech-20 to really kind of get an idea of what is going on with tech, and how it is affecting the office market,” explained CBRE’s Research Director Lexi Russell. “The tech industry has grown tremendously in every one of these markets, and that has been primarily affecting the office market as well as multifamily.”
Total high-tech industry job growth sat at around six percent between 2010 and 2018, four times higher than the U.S. national average, and the tech industry is expected to add 156,000 jobs by the end of 2019. Among CBRE’s Top-30 tech hubs, which includes cities such as San Francisco, Portland, Oreg., California’s Silicon Valley, Seattle, Charlotte, N.C., and Atlanta, Georg., 24 exceeded the 3.4 percent U.S. high-tech job growth over the past two years. Vancouver, Canada, ranked first in growth at 30 percent, with san Diego, Toronto and Seattle following close behind. San Francisco, Austin, Texas, New York and Silicon Valley also posted job growth of more than 13 percent over the past two years.
“Every single industry is trying to be a little tech,” said Russell. “Basically, you have software engineers and new software and new applications coming from the finance industry, real estate companies, insurance and many others. A lot of these companies are expanding not just locally but nationally or globally.”
The high-tech industry now accounts for the largest share of U.S. major leasing activity, accounting for 21 percent of all leases exceeding 10,000 square feet, up from 19 percent in 2018, 18 percent in 2017, and up from about 11 percent in 2011. The 10 most active tech companies now account for 27 percent of technology sector leasing.
Additionally, office market rent growth is tightly correlated with tech job growth, states CBRE in its report; one-third of its top 30 markets posted rent growth of 10 percent or more between the second quarter of 2017 and the second quarter of 2019. Office rents also increased in 28 of the 30 markets over the same time period. San Francisco was first in overall market rent growth, at 17.5 percent, followed by Portland (15.8 %), Silicon Valley (15%), Charlotte (13.9%) and Atlanta (12.6%). Seattle posted rent growth of 12.4 percent.
Much of this rent growth, stated Russell, was not just due to rapid tech expansion, but also to limited construction in many markets, creating a classic supply and demand imbalance.
“There was a low period of new office construction nationally, so that supply-demand imbalance is starting to correct itself,” said Russell. “Office space has been getting gobbled up, we’ve had full building leases [in markets like San Francisco and Seattle]. Real estate is very constrained, and it does take time to erect a building for people to occupy. There is lag time.”
In addition to constrained space, tech companies are feeling the talent crunch, one of the biggest inhibitors to growth. Only 37 percent of all tech workers are employed by the high-tech industry, and tech must compete with other sectors for talent. Additionally, with the unemployment rate for college-educated workers at 2.4 percent.
“Each of these markets are coming up against similar headwinds,” said Russell. “The unemployment rate is very, very low and that makes it harder to hire any sort of worker, let alone someone with very specific skills.”
While this has impacted some markets such as Dallas/Fort Worth, Orange County and Atlanta, who have slower tech hiring because of limited resources, overall the tech industry remains stable. This momentum will likely carry on into the future, which also bodes well for tech-oriented office markets.
“The market has been very, very stable; I think that trend will continue. These companies are really integrating themselves into everyday consumer lives and everyday business lives,” said Russell of her predictions for the future. “We are seeing it from markets large and small. Over the last five to 10 years, there has been phenomenal growth in the tech market. Tech is really integrating itself into everything we do.”