The technology industry is taking over the office property market—there is no escape. Two new studies show that investors, developers and brokers have accepted that catering to the tech sector, and the new-fangled space needs of its employees, is the best path to low vacancy and high rents.
There’s no question that the massive increase in office leasing by technology firms helped lift the industry out of the recession, to the point where today’s vacancy rates are back to pre-downturn levels and rents are gaining traction again. The energy industry, fueled by fracking, also contributed to the rebound, but the oil market lost its momentum somewhat due to the recent drop in prices.
The high-tech wave is not, surprisingly, a massive force driving the office industry—its strength is its continuity, according to the new “Tech Talent Scorecard” report from commercial real estate services firm CBRE. Pure tech talent jobs, including software developers and programmers, computer support positions, database and systems specialists, technology engineers and information system managers, only account for 3.4 percent of the total U.S. workforce, with about 4.4 million workers. However, the technology industry accounted for the greater share of major U.S. office leasing activity than any other sector in 2013 (at 13.6 percent) and 2014 (at 19.0 percent), according to the report.
Colin Yasukochi, director of research and analysis with CBRE, says the tech industry was the wave that lifted all boats in the primary U.S. office markets, and is responsible for pushing up leasing and property sales in some secondary cities as well. San Francisco and Washington, D.C. are the top “momentum markets,” based on tech talent growth rates, he says, but Oklahoma City and Nashville had tech talent growth rates of 39 percent between 2010 and 2013, boosting the cities’ occupancy rates and rents. The need to accommodate a rapidly expanding body of tech talent can have major implications for real estate markets, according to the report.
“Tech talent growth, primarily within the high-tech industry, has recently been the top driver of office leasing activity in the United States,” Yasukochi said in a statement. “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.”
The report ranks the top tech talent markets as Silicon Valley in California, Washington, D.C., San Francisco, New York City, Seattle, Boston, Baltimore, Austin and Atlanta. The rankings are based on employment, education and average income factors. Top secondary markets with large tech-sector growth include Oakland, Calif.; Edison, N.J.; Columbus, Ohio; Salt Lake City; Portland, Ore.; Newark, N.J.; Long Island, N.Y.; Kansas City, Mo.; Charlotte, N.C. and Cincinnati.
The main characteristic shared by all tech talent markets is a high degree of educational attainment, according to CBRE. Most of the top 50 tech markets have an educational attainment rate greater than the U.S. average. In the top markets of San Francisco, Washington, D.C. and Seattle, more than 50 percent of residents ages 25 and older have earned at least a bachelor’s degree. Many of the high-tech employment clusters are located near major universities.
In addition, members of the millennial generation also make up a large part of the new tech talent pool, as they have grown up with new technology. Office experts say these young people want to work in urban cores with lots of amenities and prefer office space layouts with consolidated, collaborative and cool office settings.
The commercial real estate experts used to catering to the professional services sector first watched this transformation with disbelief, but have now accepted the new rules driving the market. This respect is also due to the fact that more than 60 percent of tech talent jobs are located outside of the core high-tech industry, according to the CBRE report. For example, a new report by commercial real estate services firm JLL examines how the banking industry has used technology to form the “fintech” sector, financial services firms whose products or services are built on technology. According to the study, this sector saw a 26 percent year-over-year growth in 2014, and is expected to reach $8 billion by 2018.
The fintech firms mirror the needs of today’s tech industry, such as desiring the urban office environment instead of suburban office buildings. For example, the mobile payment service firm WorldPay announced late last year that it will move its headquarters from Sandy Springs, Ga. to Atlanta, bringing 1,200 workers with average earnings of about $73,000 each to the city’s downtown area.
Peter Riguardi, president of JLL’s New York tristate region office, says the new fintech tenants have forced brokers and owners serving the financial services industry to adapt to the new tech requirements of consolidation, collaboration and coolness.
“There’s an intense battle in the financial sector to compete for this talent, a need to find real estate solutions that are creative to hire that type of employee,” he says. “Owners and brokers are looking for locations that appeal to the millennials, where employees can achieve greater work-life balance.”