LOS ANGELES — The San Francisco Bay Area remains the nation’s leading tech market, but the competition for talent is getting tougher as more highly skilled tech workers — especially Millennials — are flocking to cities where the cost of living is lower and tech jobs are plentiful, according to CBRE Group Inc.’s (NYSE: CBG) research report, “Scoring Tech Talent.” The annual report ranks 50 U.S. and Canadian markets according to their ability to attract and grow tech talent.
To appeal to skilled talent at a lower cost of doing business, both new and expanding companies are establishing footprints in more affordable markets — including Nashville, Charlotte, Tampa, Seattle and Phoenix — leading to a rise in demand for office space and a decrease in office vacancy.
“Tech talent markets share several distinct characteristics, including high concentrations of college-educated workers, major universities producing tech graduates and large Millennial populations,” said Colin Yasukochi, who authored the report on behalf of CBRE Research. “The robust entrance of Millennials into the labor pool contributed greatly to the growth in tech talent across all 50 downtown markets in our ranking this year.”
Tech Talent Scorecard
Established tech markets, namely the San Francisco Bay Area, Washington, D.C., and Seattle, remain atop the 2016 “Tech Talent Scorecard,” with New York and Austin rounding out the top five. Austin moved up three spots after ranking No. 8 last year.
Rankings are determined based on 13 metrics including tech talent supply, growth, concentration, cost, completed tech degrees, industry outlook for job growth and market outlook for both office and apartment rent cost growth.
The top 10 cities were all large markets, each with a tech labor pool of more than 50,000. Rounding out the top 10 were Dallas/Fort Worth, Boston, Raleigh-Durham, Atlanta and Baltimore. Phoenix, Toronto, Chicago, Orange County and Minneapolis fell just outside of the top 10.
Top Momentum Markets
The report also ranked cities based on tech talent growth rates between 2010 and 2015. Charlotte and Nashville, which saw tech talent growth rate increases of 75 percent and 68 percent, respectively, topped this year’s list of “momentum markets.”
“Tech talent growth rates are the best indicator of labor pool momentum, and it’s easily quantifiable to identify the markets where demand for tech workers has surged,” said Yasukochi.
The following are the top 10-ranked momentum markets and their associated tech talent growth rates:
1. Charlotte (74.7 percent)
2. Nashville (67.9 percent)
3. San Francisco Bay Area (61.5 percent)
4. Baltimore (61.4 percent)
5. Oklahoma City (59 percent)
6. Phoenix (58.1 percent)
7. Austin (51.8 percent)
8. Tampa, Fla. (50.9 percent)
9. Seattle (50.2 percent)
10. Vancouver (50.1 percent)
Impact on Office Markets
High-tech companies’ share of major office leasing activity increased from 11 percent in 2011 to 18 percent in 2015 nationwide — the largest single share of any industry, according to CBRE Research. Many tech talent markets, especially those with high concentrations or clusters of tech companies, have seen rising rents and declining vacancies as a result.
Of the 50 tech markets analyzed in the CBRE report, those experiencing the largest rent cost increases from 2011 to 2016 are the San Francisco Bay Area (95 percent), New York (46 percent), Austin (30 percent), Boston (27 percent) and Denver (27 percent).
Tech markets experiencing the largest office vacancy rate decreases during the same time period were Austin (12.2 percentage points), Toronto (12.1 percentage points), Vancouver (10.1 percentage points), Tampa (9.2 percentage points) and Charlotte (8 percentage points).
Tech firms’ significant demand for office space has raised rents to their highest levels and pushed down vacancy rates to their lowest. Rent growth is most prominent in the large tech markets with office rents in the San Francisco Bay Area nearly double what they were five years ago. The decrease in vacancy rate, however, is present across both large and small tech markets, with the Nashville vacancy rate the lowest of the top 50 tech talent markets.
“Although a relatively small portion of the economy, tech-talent employers spurred economic activity and added more than 1 million tech jobs during the past five years,” said Yasukochi. “As a result, tech talent growth has recently been the top driver of office leasing activity in the U.S. and high-tech companies are now one of the main drivers of commercial real estate activity.”
— Staff Reports