Tech Cities 2.0 highlights the tech industry’s critical impact on commercial real estate
LOS ANGELES, September 27, 2018 – Cushman & Wakefield today released Tech Cities 2.0 an annual report that identifies existing and emerging tech centers increasingly driving the North American economy and details their impact on the commercial real estate sector.
A follow-up from last year’s inaugural Tech Cities 1.0 report, this year’s research reviewed all major North American markets, and groups the top cities into three categories based on how important the tech sector is to the local economy and real estate market: ‘tech is a critical component’ / ‘tech is a key driver’ / ‘tech is important’.
“As tech companies continue to dominate headlines and grow, a key question is how this affects commercial real estate. Building upon our inaugural Tech Cities report from last year, Tech Cities 2.0 offers new data and a further in-depth analysis of the marketplace,” Revathi Greenwood, Cushman & Wakefield’s Americas Head of Research, said.
“Tech is no longer limited to just traditional technology companies – media companies, retailers and even law firms are competing for the same spaces and talent as traditional tech companies. While the result can be seen in nationwide trends, we’ve identified key insights that impact companies across every industry,” Greenwood said.
Ken McCarthy, Cushman & Wakefield’s New York-based Principal Economist and Applied Research Lead for the U.S. said Tech Cities 2.0 demonstrates the profound impact the tech sector has had on commercial real estate in what appears to be one fell swoop but has been building since the financial crisis of 2008.
“Although we expect established markets like Silicon Valley to see continued investment, new tech hubs are emerging across North America, from Provo to Philadelphia, sustaining a period of tech-driven, economic growth unseen since the dot-com boom of the late 1990s.”
McCarthy said New York City had seen significant growth in the TAMI sector (Technology, Advertising, Media and Information). “If Silicon Valley is the brains of the tech sector, then New York City is the creative center. In this cycle, tech has been very important to New York City. TAMI employment growth has been much stronger than many other sectors and that growth has been centered in that Midtown South of Market, and that market in particular has seen significant growth in terms of both property values and rents.”
The tech industry has changed the way its companies and also those traditionally non-tech approach commercial real estate said Robert Sammons, Cushman & Wakefield’s Senior Director, Northern California Research.
“Both start-ups and big tech companies have recognized they need a footprint in the central cities to keep attracting millennial workers, and as a result, they are taking large chunks of high-rise buildings and trophy assets in dense urban areas – in addition to keeping their sprawling campuses in the suburbs,” Sammons said.
As well, he added that tech companies are driving demand as they continue to hunt for space and grabbing it in certain hot markets when they can find it. “With unemployment at 4.0% or lower in each of these markets, tech companies of all sizes are in a war for talent and must do their utmost to hold on to and recruit employees – and that means the best salaries, the best incentives, the best space and the best location. That last point has generally meant an urban or even suburban location that is mixed-use, walkable, bikeable and near mass transit,” he said.
“The trend for the start-ups and tech companies to occupy large spaces in metropolitan areas is occurring all over North America and especially in the cities our report identifies as ‘Tech is a critical component of the local economy and CRE market,’” Sammons said.
Combining employment, occupations, venture capital investment, and demographics statistics, this year’s list from Tech Cities 2.0 is separated into three major categories:
- Tech is a critical component of the local economy and CRE market:
- Salt Lake City
- San Diego
- San Francisco
- Silicon Valley
- Washington, DC Metro
- Tech is a key driver of the local economy and CRE market:
- Dallas/Fort Worth
- Minneapolis/St. Paul
- Portland, OR
- Tech is important to the local economy and CRE market, but there are other important sectors as well:
- Greater Los Angeles
- South Florida
- New York City
Key findings from Tech Cities 2.0 include:
- In the first of half of last year, 42% of the square footage in the top 100 leases in North America were signed by tech companies.
- The fastest growing tech employment market since 2010 is Provo, Utah. Though a smaller market than the others on the list, the number of people employed by tech companies increased 64.9%, surpassing the 62.7% increase in San Francisco.
- Average asking rents in cities like Atlanta, Austin, Seattle, and San Francisco have increased more than 50% since 2010.
- Property prices are skyrocketing. Among the Top 25, property prices have increased on average by 59%, with the greatest increases happening in Austin, Silicon Valley, and San Francisco.
- Cities that are targets for venture capital funding are the most important tech cities in North America. Among the Top 25, VC funding grew by an average of $2.0 billion compared to $457 million for the top 101 markets.
- The top four cities for new construction are all cities where tech is a critical factor in the local real estate market, including: Austin, Raleigh/Durham, Seattle, and San Francisco.
Quote by Eric Kenas, Research Market Director for Greater Los Angeles, Orange County, and Inland Empire:
“Greater Los Angeles encompasses the entire experience that tech companies demand: high-quality of life, a lifestyle that emphasizes balance, world class colleges and universities (Caltech, UCI, UCLA, USC), a large talent pool, capital funding and plentiful supply of jobs and workers—all reflecting LA’s current standing as a top tech city. Cost of living, although perceived as high, is low in comparison to other gateway/tech markets. There’s also the youth factor. Millennials make up over 22.7% of GLA residents. As the driving force behind much of today’s innovation culture, this cohort is highly sought out by growing companies. This cluster of talent provides favorable conditions that will likely promote future growth. Startups and industry titans alike strongly prefer to locate in areas with an existing talent base, which makes Los Angeles a promising option for a broad set of employers.”
Tech in Greater Los Angeles and Orange County:
- Media & Tech has disrupted commercial real estate—developers know it, companies understand it, and the region benefits from it. As technology intertwines with daily life in deeper and deeper ways, fast-growing tech firms have become one of the biggest agents of change in today’s business landscape. Like in other big cities across North America, technology companies in GLA are fueling new jobs, changing the look of local communities, and driving core real estate cycles in leasing and rental growth. At the same time, each market is unique—and GLA tech has a distinct SoCal flavor.
- Here are some factors behind LA’s status as a top tech city, the innovations propelling our industry, and the impacts on the region both now, and in the future. To become a tech hotspot, a city needs just the right mix of ingredients: strong human capital, steady flows of investment, and a cluster of innovative institutions. As Tech Cities 2.0 illustrates, Greater Los Angeles has many of these factors in spades. GLA supports nearly 270,000 skilled technology jobs and over 306,000 residents work for some kind of tech firm.
- With 13.3 million people, only second to New York among U.S. metros, Los Angeles & Orange County encompasses an area of 5,700 square miles with 290.8 million square feet of office space and a GDP of over $1 trillion. LA County alone ranks among the world’s largest economies. Greater Los Angeles has one advantage that many Tech 25 Cities do not possess—and that is geographic size. GLA has a wide diversity across job sectors and major industries, and Tech has broadened this diversity even further.
- From content creation, digital media, entertainment, gaming and automation to cyber security, defense tech, healthcare technology, med tech, SaaS and biotech; all bode well in a less confined or constrained market. This has created unique sub-pockets that are individually reaching the maturation phase. The Tech ecosystem has afforded companies the opportunity to grow, attract talent, and thrive as an interconnected community.
- Whether it’s Content/Production in Hollywood (Netflix & Viacom), Tech/Advertising in the Westside (Google & Fandango), Start-ups in DTLA (Hyperloop & Honey), Biotech in the Greater Airport Area (Edwards & Allergan) or Cybersecurity in South County’s Irvine Spectrum (Cylance)—companies are planting their flags in these industry specific tech micro-communities.
LA/OC ranks high in:
- 3rd – 306,619
- 8th – 22.7%
VC Funding and Growth
- 5th – $5,612.48M and 4th – $3,249.94M (VC increase)
Persons Employed in Tech Occupations
3rd – 269,750
Click here to view Cushman & Wakefield’s Tech Cities 2.0 report!