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Top Tech Cities Draw Hefty Rent Premium for Office Space

9/22/15

Businesses looking for office space in the nation’s hottest tech markets should expect to pay a premium – and a hefty one in many of the top tech cities, according to a new research report by CBRE Group, Inc. The report, which analyzes the top 30 tech cities across the U.S. and Canada, showed an aggregate rent premium of 11 percent across all 30 markets—a number that jumps significantly higher in the hottest tech submarkets, including Santa Monica, which had the second-highest rent premiums in North America, between Boston’s East Cambridge at 87 percent and Mountain View (Silicon Valley) at 73 percent.

In Portland, tech companies are a significant source of office space demand; in 2014 they accounted for more than one-third of the top leasing transactions. Demand for space is so strong that speculative construction is on the rise for the first time since the Great Recession.

“Portland's secret is becoming harder to keep as we continue to attract world class talent and employers alike – from emerging startups to established technology giants who find Portland’s tech savvy, quality of life and affordability very compelling,” said Ajay Malhotra, Vice President, who leads CBRE’s Tech and Media Practice group in Portland. “Robust recent M&A activity has further cemented Portland’s reputation as a vibrant community in which to start, grow, exit and repeat.”

Portland is becoming an appealing alternative for employers to recruit talent. Tech firms employed 24,497 people in Portland at the end of 2014, and a total of 16.4% of all new jobs created were tech jobs. The CBD had an average asking rent of $26.99 per annum and a vacancy rate of 9.9% as of Q2 2015.

In terms of office rent growth, Portland jumped significantly: office market rents increased by 8.8% from Q2 2013 to Q2 2015, more than double the increase reported over the previous period. The Portland CBD was also the 12th-ranked submarket of the top tech submarkets in terms of office rent growth, at 13.6 percent over the same period.

“With the increasing housing and salary costs in traditional tech markets like San Francisco and Silicon Valley, more companies are starting to look north to Portland,” said Jason Green, Managing Director of CBRE’s Portland office. “This increased demand has directly affected office rents as developers and owners move to meet the needs of the market.”

The high-tech software/services industry has created 730,000 new jobs since 2009 and was the leading driver of U.S. office market demand, accounting for 20 percent of major leasing activity, through Q2 2015. In many leading tech markets, the sector is even more dominant: in Silicon Valley, Austin, San Francisco and Seattle, high-tech companies accounted for 88 percent, 63 percent, 62 percent and 60 percent of major leasing activity through Q2 2015, respectively.

“The high-tech industry is directly supported by consumer demand and a growing number of high-tech integrated businesses, which should keep the industry strong in the years ahead and provide further support for office markets in the Tech-Thirty,” said Colin Yasukochi, director of research and analysis for CBRE. “Commercial real estate investors must be mindful and have realistic expectations about this historically volatile industry underpinning the health of many ‘Tech-Thirty’ office markets.”





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