Office Rents Jump in Tech Worker-Heavy Markets

Value remains a key driver when firms choose an office location, but companies are willing to pay premium rents to access the highest quality tech talent, reported CBRE, Los Angeles.

Combined office occupancy and talent costs increased as much as 12.5 percent over the past year, largely because competition for tech talent has heated up, CBRE’s annual Scoring Tech Talent report said.

“Tech employment growth has a multiplier effect that positively impacts economic growth, which in turn can have an immense impact on commercial real estate,” said CBRE Director of Research and Analysis Colin Yasukochi.

Taking both real estate and personnel costs into consideration, the typical 500-person tech company that needs 75,000 square feet of office space can expect a total annual cost ranging from $27 million in Montreal, the least expensive of the top 50 tech markets, to $59 million in the San Francisco Bay Area. Just one year ago, those costs ranged from $24 million in Vancouver, B.C. to $57 million in the Bay Area.

The report rated Canadian markets “among the best-value markets” in part due to the strong U.S. dollar, with Toronto, Vancouver, Montreal and Ottawa offering quality personnel at relatively low cost. In the U.S., Indianapolis, Ind., Pittsburgh and Detroit were strong value markets, Yasukochi said.

The high-tech industry added more than 650,000 jobs in the past five years, making it the top driver of office leasing activity during that time. High-tech’s share of major leasing activity nationwide increased to 20 percent in 2018, nearly doubling 2011’s percentage, and is the largest single share of any industry.

Accordingly, office rents are up and vacancies are down in many of the tech talent markets, with the biggest impact in the most tech-concentrated areas where tech clusters have formed or are forming, the report said. In top markets, where tens of thousands of workers have been added in the past five years, significant demand for office space raised rents to their highest levels and pushed down vacancy rates to record lows.

Rent growth is most prominent in large tech markets, with office rents 50 percent higher than five years ago in the Bay Area and Orange County, Calif. But the decrease in vacancy rates is present across both large and small tech markets, CBRE said. Vacancy rates in Madison, Wis., Vancouver and Charlotte, N.C. are the lowest of the top 50 tech talent markets, with large markets such as New York, Toronto and the Bay Area not far behind.

The markets with the most significant five-year rental rate growth include Orange County with a 52 percent growth rate, the Bay Area with a 50 percent rental growth rate and Portland, Ore.’s 38 percent growth rate.