The supply of top-quality office space continues to tighten in technology strongholds such as the San Francisco Bay Area, New York and Seattle. The increasingly limited supply is causing fast growing high-tech companies to look in new and unexpected markets in Florida, North Carolina, even former Rust Belt dinosaurs like Detroit and Indianapolis. Office rents are spiking in core tech markets, while the quest for talent and affordable real estate is creating clusters of activity around the country, from vehicle technology firms in Detroit to financial back-office start-ups in Charlotte, NC, to video game creators in West L.A., according to JLL‘s latest High-Technology Office Outlook. “The race is on among cities vying to become the next Silicon Valley. As a result, more incentives and tax credits become available to lure high-tech companies into markets that are in need of jobs and economic growth,” said Cara Trani, co-lead of JLL’s Technology brokerage group. “High-tech’s growth is not exclusive to traditional high-tech markets anymore — clusters have become much more common as high-tech innovations form the backbone of new product development in all industries.” Rents have taken a sharp turn upward as concessions have burned off in major CBD markets, according to CoStar’s Midyear 2014 Office Review and Forecast. Charlotte, Atlanta and Detroit — which have all seen an influx of tech company expansion — are posting solid net absorption. Premier suburban markets such as Houston, Phoenix, San Jose and Orange County logged very strong demand for office space, driven by technology and other growth industries, according to CoStar data. The savings potential has become huge for companies scouting these suburban and larger secondary and tertiary markets, especially in light of frothy demand in core tech markets like downtown Palo Alto, CA, considered the heart of Silicon Valley. The vacancy rate has shrunk to 3.6% while average asking rents have skyrocketed to $86 per square foot — nearly three times the national average of $30 — surpassing even New York City’s ritzy Plaza District. Rents in markets less associated with technology, but perhaps closer to a company’s client base, can be less than half that figure, according to JLL. High-tech has quietly become Orlando’s second-largest industry, with buildings like the Church Street Exchange, a former mall re-purposed for tech companies, going from mostly vacant to more than 90% leased in less than 12 months.
Get the latest industry news and information from CRE-sources delivered right to your email inbox!
And we promise…no more than one email each morning.