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November 17, 2018
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L.A. Jumps to Second Place for Office Rent Growth among CBRE’s Tech-30

11/01/18

This report provided to us by real estate services firm CBRE

Buoyed by double-digit tech-sector employment growth, Los Angeles ranked second among the 30 leading tech markets for office rent growth, up from 12th place during the prior period, according to CBRE’s annual Tech-30 report, which measures the tech industry’s impact on office rents in the leading tech markets in the U.S. and Canada.

Los Angeles’ high-tech employment increased 14.7 percent during 2016 and 2017 compared with a 13.5 percent rise during the prior two-year period. Average office asking rents rose 15.8 percent from Q2 2016 to Q2 2018. Los Angeles’ combination of lower office rents as compared with the pricey Bay Area to the north and a growing high-tech labor pool make it an attractive market for commercial real estate investors.

Technology firms based in the top four tech headquarters markets—the San Francisco Bay Area, Seattle, Boston and New York—are expanding into new areas, creating more demand for office space and driving office rent growth in the beneficiary markets, the report shows. Together, tech firms headquartered in these four markets have taken more than 25 msf of space outside of their primary markets over the past five years, led by firms in the San Francisco Bay Area, which accounted for 18 of the 25 msf.

The Los Angeles County office market has benefitted a great deal from expanding technology companies, including many based in the San Francisco Bay Area. Tech firms based in the top four headquarters markets have leased 1.3 msf in the LA area over the past five years and have helped thrust the regional office sector out of the recession, according to CBRE research.

“Never underestimate the weather and the beach; it’s a very Southern California-specific amenity that employers can offer to their workers like nearly no other region can; and today is all about amenities and experiences,” said Chris Penrose, first vice president at CBRE. “This city has done a great job in developing many of its submarkets into vibrant live-work-play neighborhoods with great entertainment and better transportation options, such as Hollywood, Downtown, Culver City or the Tri-Cities. Many local as well as out-of-town employers have definitely taken note of that.”

He added “LA’s immense popularity today with tech employers is also closely related to the emphasis on content creation. These companies require large amounts of space and employees to help produce an immense number of movies and shows, and the Greater LA area, with all its high-quality talent and great office markets to choose from, can provide just that.”

Top 10 Office Markets by Rent Growth

MARKET RENT GROWTH RANK RENT GROWTH RATE Q2’16- Q2’18 TECH JOB GROWTH RATE (% CHANGE ’16-17)
Atlanta 1 16.3% 10.7%
Los Angeles 2 15.8% 14.7%
Orange County 3 15.5% 14.5%
Seattle 4 13.9% 25.7%
Portland 5 13.8% 12.8%
Charlotte 6 13.7% 15.4%
Raleigh-Durham 7 12.8% 10.2%
Nashville 8 12.3% 12.3%
Denver 9 9.6% 12.5%
Washington, D.C. 9 9.6% 3.9%

Impact of Tech Job Growth on Office Markets

The influence of tech job creation on office market growth is pervasive across the U.S. and Canada, with eight of the Tech-30 markets posting rent growth of 10 percent or more between Q2 2016 and Q2 2018. Office rents also increased in 26 of the 30 primary tech submarkets over the same period.

“As space availability in top tech submarkets continues to tighten, we expect large tech companies to continue to expand outside their headquarters markets—including further into secondary and even tertiary markets. Large tech company expansion into smaller markets will help foster innovation clusters, further boosting job creation and creating additional office demand,” said Colin Yasukochi, director of research and analysis for CBRE in the San Francisco Bay Area.





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