High-Tech Drives Rent Increases

CBRE has released its latest research report, U.S. Tech-Twenty: Measuring Office Market Impact, which shows that high-tech companies have accounted for 20% of major leasing activity in the United States so far this year, up from 14% last year. The high-tech job growth has fueled the office market recovery, driving double-digit rent growth in eight U.S. markets over the past two years, including San Francisco, Austin, Manhattan and Silicon Valley. The accelerating rents was especially pronounced within tech-dominated submarkets, where rents have increased 30% over the past two years, Midtown South in Manhattan (up 29%) and River North in Chicago (up 26%).

"Within preferred submarkets, which, in many cases, are the neighborhoods of choice for millennials and high-tech companies, vacant space has become increasingly scarce. As a result, nearby submarkets may see increased leasing activity by tech companies," said Colin Yasukochi, Director of Research and Analysis for CBRE Global Research and Consulting.

Highlights of the report include:

• High-tech was the top industry leasing office space in the U.S., accounting for 20% of major leasing activity thus far in 2014, up from 14% in 2013.
• San Francisco topped the U.S. Tech-Twenty Office Markets list for the third straight year. Over the past two years, San Francisco's high-tech job base has grown by 51%, while average asking rents have climbed 35%. The key ingredient to this “tech-effect” on the office market is the concentration of high-tech employment in each market and how dominant new high-tech job creation is relative to overall office-using employment.
• The rent premium commanded by submarkets with heavy high-tech employment is increasing. The average office rent aggregate of the Tech-Twenty submarkets was 18% higher than the Tech-Twenty overall markets.
• From an investor's perspective, San Diego, Portland, and Orange County offer the greatest potential. These markets are also attractive to occupiers, although Raleigh Durham offers the best combination of low office rents and a growing high-tech labor pool.

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