New Study Shows Tech Clustering Drives Demand for Office Spaces

Tech Clustering Drives Demand for Office Spaces

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On April 21st, CBRE, a global real estate and investment firm, released the “Scoring Tech Talent” report, which ranked 50 of the top U.S. cities by their density of tech professionals. The report identified how tech talent clustering in cities is directly correlated with demand for office spaces in small and large markets, with large markets defined as having a pool of more than 50,000 tech professionals.

While tech talent made up a mere 3.4 percent of the total U.S. workforce, it accounted for more U.S. office leasing activity than any other work sector in 2013 and 2014, according to the CBRE report. Since 2013, the tech industry has been a constant driver of commercial office real estate, and effects both rent and vacancies in any given city with a tech pool population. According to Director of Research and Analysis, Colin Yasukochi, in a press release for CBRE, “Tech talent growth rates are the best indicator of labor pool momentum.”

Effects on Real Estate

Part of what CBRE considered when scoring cities was a combination of employee wages as well as cost of rental space. Those two expenditures combined were idealized for a “typical” 500-person tech firm utilizing 75,000 sq. feet of space. For large markets, Silicon Valley had the highest costs, and Detroit the lowest. Small markets, defined as less than 50,000 tech employees, had Oakland, CA topping the list, and Oklahoma city displayed as the best value.

Several surprising cities popped up on the radar after the CBRE report was released in may, notably places like Raleigh-Durham, NC and St. Louis, MO, which pulled in 14th and 32nd, respectively. Companies located in areas with dense tech talent pools are looking to expand office space to accommodate the growth of their industries, and by association, the tech boom as a whole.

How does San Francisco compare?

With San Francisco topping the charts as the most expensive city to lease housing in, it makes sense that it is also home to expensive office real estate. In the fourth quarter of 2014, the average square foot of office space in the bay cost $62.59. That’s over double the 2009 prices; over the last five years, vacancy rate in the San Francisco area has fallen from 15 percent to under 5 percent, according to Newmark Cornish & Carey, a large commercial real estate broker firm. In comparison, real estate prices in Manhattan have been slowly dropping, but the Big Apple continues to have the highest office rent rate; San Francisco thus far has the lowest vacancy rate of the 50 tech dense cities cited in the CBRE report.

In addition to rental cost and wages, the report took into account gender diversity, education, and millennials when comparing the 50 tech dense cities that made the list. Millennials have greatly added to the number of tech workers in the market pool, as almost 75% of the top 50 tech market cities boast workers with educations above the national average; according to the 2014 national census, for both sexes above 25-years-old, the national education attainment average was a bachelor’s degree.