While Silicon Valley remains the nation’s most vibrant tech center, the area's innovative spirit is spreading across America. More than two-thirds of tech workers now feel little or no need to live in the Bay Area, and talent is migrating to new metropolises. Below are 2017’s Top 5 tech meccas looking to overthrow Silicon Valley, according to Forbes.
As tech job growth continues at a rapid pace, it’s beginning to transform smaller cities such as Phoenix and Austin, Texas into top office markets as tenants seek lower rents, less expensive labor, and a lower cost of living for employees than major tech powerhouses like San Francisco and Silicon Valley.
San Francisco saw a 47 percent jump in its high-tech job base from 2013 to 2015, to almost 70,000 workers, according to a recent report by CBRE. In Phoenix, high-tech job growth was 45 percent from 2013 to 2015, to almost 50,000 workers. Both Austin and Charlotte, N.C., had jumps in high-tech jobs of about 33 percent in that timeframe. The tech sector has grown to account for one-fifth of all office leasing today, says Colin Yasukochi, director of research and analysis at CBRE. The 30 top tech markets all saw office job growth of more than 16 percent, outpacing the national average of 13.7 percent.
After spending years as the nation’s hottest office market thanks to the booming tech industry, San Francisco landlords are bracing for a slowdown as startup valuations weaken and the flood of venture-capital funding slows. The city’s office-vacancy rate jumped in the second quarter by the most since the last recession, while the amount of space available for sublease almost doubled, according to a report to be released this week by brokerage Cushman & Wakefield Inc. New lease deals have tumbled so far this year. Trouble is expected to continue, as investors expect acquisitions of smaller companies whose valuations are falling to potentially lead to job cuts and office consolidation.
San Francisco’s booming office market is starting to raise some concerns, as tech industry turbulence could reappear and cause companies with banked space to suffer. Thanks to the tech industry, San Francisco has become the hottest office market in the U.S., with diminishing vacancy and rents soaring 137% since 2010. However, much of the office market’s strength is based on growth speculation. Major tech companies and startups have been “space banking” and signing up for large amounts of space for future expansion due to fear of the tightening office market. But these could prove to be risky wagers given the turbulent history of the tech industry.
Pittsburgh is beginning to look like the country’s next up and coming tech hub, as Facebook announced in January that it would open a research center for its Oculus virtual-reality division in the city, becoming the latest in a string of major tech companies, including Google, Apple and Uber, to open offices in the city in the past few years. But can Pittsburgh make the jump from its prominent role in the steel industry to emerging tech hub? A lot of factors would point to yes, but no matter what happens, savvy real estate investors will keep Pittsburgh on their radar as it continues to attract the attention of tech giants.
A booming technology sector combined with a tight supply of commercial real estate has driven San Francisco’s office rents to the highest in the country. This will be the first time in more than a decade and a half that the price of office space in San Francisco surpassed that of Manhattan, which was a short-lived reign due to the original Internet gold rush and subsequent bursting of the dot-com bubble wiping out many start-ups. Average office rents in San Francisco rose 14 percent last year, compared with 7 percent in Manhattan, according to a new report from CBRE Group, a commercial real estate services and investment firm. Average office rents that San Francisco landlords are asking for to $72.26 a square foot in the fourth quarter of last year, edging out the $71.85 a square foot in Manhattan.
As the Puget Sound/Seattle region has evolved into one of the nation’s leading markets for technology jobs, the office sector is reaping the benefits. Fifteen new office towers are currently under construction in the central business district (CBD) and rents are rapidly increasing. According to the recent Global Prime Office Occupancy Costs survey from commercial real estate services firm CBRE, downtown Seattle experienced the most significant annual change in occupancy costs, increasing by 17.3 percent. A third quarter report from commercial real estate services firm Kidder Mathews found that the city’s downtown vacancy rate has dropped to 8.8 percent, back to pre-recession levels and are trending downward. Rents for the CBD have increased almost 10 percent year-over-year, according to a report from commercial real estate services firm Colliers, pushing value-minded office tenants to look at class-B and class-C buildings.
Apple Inc. investing at least $13 million in the massive Elk Grove campus expansion is the latest sign that the Sacramento region is finally gaining traction with technology employers. While Bay Area office lease rates have skyrocketed over the past five years, Sacramento remained stagnant. However, Apple converting one of its warehouses into a logistics center and possibly adding several thousand jobs could indicate that Sacramento is beginning to experience the spillover benefits seen in past booms.
Gov. Kate Brown signed Senate Bill 611 last week, ending the controversial “central assessment” tax of data centers that created years of legal uncertainty for tech companies in Oregon and threatened future growth of the industry in the state. The legislation spiked global interest, as it hopes to trigger a data center boom and attract tech giants such as Amazon, Facebook and Apple to rural Oregon by changing rules for assessing property taxes on telecommunications infrastructure by exempting data centers coveted by local governments for their heavy utility fees. The bill also caps taxes that can be levied on cable TV companies, including Comcast. However, a gaffe in the bill's language has lawmakers pursuing a fix they hope will will attract Google Fiber to the Portland area.
One of new economic development director Christine Mackay's top priority this year is an "economic rebirth" of Phoenix's midtown area. Her plan is to take areas of central Phoenix that have seen office vacancy rates as high as 35 percent and turn it into a high-tech hub, specifically the area along Central Avenue between McDowell and Camelback roads to the north and south and Seventh Street and Seventh Avenue to the east and west. Because the area sits along the Metro light rail line north of downtown, she hopes to attract national and international technology companies who want to be on the transit line and near urban amenities to the tentatively named Phoenix Innovation Corridor.