Office Rental Rates on the Rise in All 30 of CBRE’s Top 30 Tech Submarkets

by John Nelson

LOS ANGELES — Office rents across the United States and Canada are getting a big lift from the influence of tech job creation, according to CBRE. All of the submarkets tracked in the brokerage giant’s annual Tech-30 report have experienced rental growth over the past two years.

In 13 of those submarkets, asking rental rates have grown by more than 10 percent in the two years tracked between second-quarter 2015 and second-quarter 2017.

On the list of 30 submarkets, office rent growth was led by Orange County, Calif. (23.3 percent), Nashville (21.2 percent), Atlanta (17.6 percent), Charlotte (16.9 percent) and Silicon Valley (16.8 percent).

According to CBRE’s Tech-30 report, the willingness of tech companies to pay a premium for office space in the hottest tech submarkets is starting to spill over into neighboring submarkets, as available space in tech “hotspots” is dwindling.

Adjacent submarkets and traditional downtowns with skylines — rather than the brick-and-beam buildings tech companies have demonstrated a preference for — are primed to benefit, according to the report.

“If tech companies that are used to paying a premium for space in the top tech submarkets are forced to move to adjacent submarkets in order to expand, we could start to see significant rent growth in those more traditional markets as well,” says Colin Yasukochi, director of research and analysis for CBRE and the report’s author.

Fundamentally Sound
The report’s top tech submarkets with the lowest vacancy rates are East Cambridge, Mass. (3.3 percent); Palo Alto, Calif. (3.7 percent) and Mount Pleasant/False Creek in Vancouver (4 percent). The report finds that the office rent premium paid by tenants in these submarkets continues to widen, with average rents for top tech submarkets increasing faster than their broader markets, with an average premium of 16.2 percent, based on second-quarter 2017 data.

That figure jumps substantially for markets at the top of the Tech-30 list, including East Cambridge (120 percent), Palo Alto (71 percent) and Santa Monica, Calif. (92 percent).

The report also says that the submarkets that offer the best combination of low office rents and a growing high-tech labor pool, such as Portland, Ore.; Raleigh-Durham; Dallas/Fort Worth; Charlotte and Nashville, have the greatest growth potential, as tech firms are naturally drawn to metros where they can find value and skilled employees.

Submarkets with Top Tech Job Growth
For the sixth consecutive year, San Francisco was the top Tech-30 submarket for high-tech job growth; its high-tech job base grew by 39.4 percent over the past two years, while its average asking rent increased by 7.1 percent.

Charlotte (31.6 percent), Pittsburgh (31.4 percent) and Indianapolis (27.8 percent), which are all considered low-cost markets, had the next highest job growth rates and rent increases of 16.9 percent, 3.5 percent and 6.5 percent, respectively.

“The creation of new market opportunities via disruption and a growing number of industries integrating technology into their business models support an optimistic outlook for continued [employment] growth ahead,” says Chris Ludeman, global president of capital markets at CBRE.

“Commercial real estate investors should benefit from the trends that have given the tech industry greater stability and a wide economic base compared with previous economic cycles,” he adds.

— Staff Reports

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