Net absorption grew 40% YOY through 2Q15, with downtown office vacancies near 10%. San Francisco leads top 30 tech markets, Phoenix and Nashville also in top 5.
New data from CBRE shows that the U.S. office market is continuing its hot streak. The U.S. gross average asking rent increased over 1% from 1Q15 to 2Q15, and by nearly 4% year-over-year in Q215, cresting the peak from 2008. 20% of all leasing volume in the first half of 2015 was driven by tech tenants, and CBRE dug deeper into this growing tech boom with a look at the top 30 tech markets (Tech-Thirty 2015).
Mirroring the delicious pie slice of all leasing volume, the tech industry has created 20%, or 730,000, of all new office jobs since 2009. Unsurprisingly for fans of HBO’s Silicon Valley, San Francisco tops the Tech-Thirty 2015 list, with tech job rates and office rents growing the quickest over the past two years (43% and 31%, respectively). <Sidebar: if you’ve enjoyed the Silicon Valley show, you should like AMC’s Halt and Catch Fire.>
Perhaps surprisingly to some readers here, Phoenix took 2nd place on CBRE’s list. From 2012 through 2014, the capital of Arizona experienced tech job growth of 43%, matching that from San Francisco. Certainly the tech darling Zenefits’ expansion to Arizona is no coincidence.
All of this tech-centric leasing and job growth is driving rental premiums through the roof: East Cambridge premium clocks in at 87%, Santa Monica at 85%, and Mountain View at 73%. The aggregated rent premium is 11%. Value seekers can find some relief in emerging tech locations like downtown St. Louis with a 17% discount and Northeast Charlotte where the discount is 12%. For those thinking about investing, CBRE points to Phoenix, Salt Lake City, Austin, and Portland. Gridium’s next company-wide “Camp” will be in Portland, and we hear the tacos are tasty, too.
Will this last?
CBRE thinks it will, at least for the next two years. The Index of Consumer Technology Expectations measures expected tech spending, and it remains on an upward trend. In 2009, the index cratered around a score of 67. It’s now up 30%, clocking in around a score of 87. This suggests continued and robust consumer demand for new and innovative technology. Sustained consumption is a tailwind to high-tech companies and the office market clusters where they are based. This trend should support further office-using employment.
Another interesting factor at play alongside the growth in tech-sector office leases is the changing design (and increased density) of those office layouts. Facebook’s CEO Mark Zuckerberg says they designed the world’s largest open floor plan–with room for roughly 2,800 people–at the company’s new HQ. We’ll explore the impacts of higher office densities in a future blog post.