JLL: Cities with Ideal Office Tech Sector, Startup Conditions

Northern California holds nine of the top 15 most expensive technology submarkets; many tech firms now look to locate in other zip codes, reported JLL, Chicago.

“Technology companies and startups need to look at a full range of options as part of their location strategy,” said Steffen Kammerer, leader of JLL’s Technology Practice group. “These companies have to grow. They can still hold a headquarters in the Bay Area, but their offices in secondary or tertiary markets can sometimes support larger staffs or hold just as much strategic importance to their business plans. We’re seeing this now more than ever.”

JLL’s Technology Office Outlook report found that the same economic forces that push rents higher along familiar northern California streets such as Sand Hill Road–at $141.60 per square foot, the most expensive street in the United States–encourage the technology sector to move into markets such as Atlanta, Detroit, Orlando and Phoenix. Indeed, 34 technology companies expanded into new locations across 19 markets over the past year, JLL said.

“Other markets are not competing against Silicon Valley; they’re competing to be more like Silicon Valley,” said JLL Director of U.S. Office Research Julia Georgules. “Technology has become so pervasive in business that it’s now becoming a part of every industry and every market.” She noted that this generates new energy in smaller markets, making them attractive to the type of talent the technology industry recruits. “It’s not necessary to be located in San Francisco or Silicon Valley anymore as a result, although you’ll still find great opportunity in those markets,” she said.

Even venture capitalists now cast a wider net across the U.S. In 2014, three-quarters of so-called “unicorn” companies–start-ups with a $1 billion-plus valuation–had headquarters in San Francisco and Silicon Valley. But that number recently fell to below 60 percent with more unicorns choosing to locate in Utah, Oakland-East Bay, Boston, Washington, D.C. and Orange County, Calif.

JLL identified 21 markets well suited for technology companies and startups that need to consider cost when choosing their location, including:

Austin: Texas’s tech hub represented a prime alternative to northern California, even though the market has caught up slightly with average asking rents sitting at $32.59 per square foot, 10-highest among the report’s 37 markets. “[But] Austin’s 15 percent annual job growth, second only to San Francisco, will keep talent attraction strong,” the JLL report said.

Nashville: “The startup future is bright for the Music City due to Tennessee’s selection for a $100 million program called TechHire,” JLL said, referring to a White House plan to train Americans for technology jobs.

Phoenix: With one of the most active development pipelines in the country and 3.9 million square feet under construction, Phoenix’s office space will evolve toward tech tenant tastes at competitive prices, JLL said. Phoenix also offers the second-lowest average monthly apartment rent of the report’s 37 markets.

Raleigh-Durham: “North Carolina’s Research Triangle is developing into a popular back-office and financial technology market,” JLL said, predicting that with the country’s sixth-lowest average annual cost per employee, Raleigh-Durham’s tech sector presence will continue to expand behind the technology units of firms such as Fidelity and Credit Suisse.