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10/25/16
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Orange County ranked number three in the U.S. for office rent growth on CBRE’s annual Tech-Thirty list, which analyzies the 30 leading technology markets in the U.S. and Canada in terms of high-tech software/services job growth. Office rents in Orange County increased 24.3 percent in the past two years, just behind Silicon Valley at 28.4 percent and Raleigh-Durham with 24.6 percent.
“We have seen increased demand from tech companies in Orange County,” said CBRE Executive Vice President Travis Boyd. “This is perhaps in part due to the high cost of office space in the Bay Area. While the OC isn’t cheap, companies are realizing you can come here and grow here. I have a number of tech clients who have found this a great place to start and to subsequently grow due to the access to a great labor pool and the high quality of living.”
He added, “You have both established tech firms as well as younger companies and start-ups. Some of the really big names in technology started here and they have created a really significant DNA strand, and a lot of people are capitalizing on this now.”
Major projects in the area catering to rising tech demand include Trammell Crow Company’s The Boardwalk.
Tech-related office leasing accounted for 20 percent of all office leasing in the U.S. in the first half of 2016, up from 18 percent in 2015, despite an overall slowing in tech job creation. CBRE’s report showed that the hottest tech submarkets where tech job creation continues to boom—led by East Cambridge, Palo Alto and Santa Monica—are significantly outperforming their overall markets in terms of leasing activity and rent premiums, fueled primarily by the demand for highly-skilled tech talent.
The CBRE report shows that office rents for the top submarket in each of the 30 markets analyzed increased in all but one submarket between Q2 2014 and Q2 2016. The highest rent growth in this period occurred in both established and up-and-coming tech submarkets, illustrating stiff competition among tenants to locate in areas rich in talent such as University City, Oakland/East End Pittsburgh, East Cambridge, Palo Alto and Tempe.
CBRE also analyzed the Tech-Thirty markets according to high-tech industry job growth. San Francisco topped the rankings for the fifth consecutive year; its high-tech job base has grown 47.0 percent between 2013 and 2015, while average asking rents increased by 22.7 percent from Q2 2014 and Q2 2016. Eighteen markets outperformed the U.S. average of 13.7 percent job growth in high-tech software/services, with Phoenix (44.5 percent), Austin (33.3 percent), Charlotte (33.2 percent), and Indianapolis rounding out the top five.
Over the past five years, the software/services industry created 780,000 new jobs at a 7.3 percent growth rate and accounted for nearly 20 percent of major leasing activity. In H1 2016, tighter labor and volatile capital market conditions led to job creation slowing to a 4 percent annual growth rate, which had a slight impact on certain office markets, like Washington, D.C., New York and the San Francisco Bay Area.
“Advanced technology has integrated itself into business productivity and although the talent pool is limited, strong demand for technology services from both businesses and consumers is expected to support hiring by high-tech firms. The skills of the available labor pool do not appear to align with available jobs, causing a structural barrier to growth,” said Colin Yasukochi, director of research and analysis, CBRE. “This demand for technology should support growth among high-tech companies and high-tech office market clusters.”
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