September 9, 2015 – The high-tech software services industry was the leading driver of U.S. office market demand, according to a new research report by CBRE Group, Inc. The report, which analyzes the top 30 tech cities across the U.S. and Canada, highlights Salt Lake City as a growth leader, and ranks the Salt Lake market tenth overall on the high-tech software/services job growth list, with a growth rate of 16.2 percent from 2012 to 2014.
Rapid and sustained growth in tech has fueled demand for commercial real estate. This demand has been reflected in market indictors such as vacancy and rent growth. The office market rent growth rate in Salt Lake more than doubled, from 4.1 percent in the prior period (Q2 2012-Q2 2014) to 8.8 percent in the current period (Q2 2013 – Q2 2015), earning Salt Lake City the number 19 slot on this list.
Salt Lake is a current growth-leader and is categorized as an expanding market—a market in which vacancy is declining, rents are rising at a faster-than-average pace, and new supply additions are underway or on the horizon.
“Market expansion is very apparent in the south end of the valley,” stated Tab Cornelison, a senior vice president who specializes in leasing office properties. “Of the 1.3 million square feet of office space currently under construction, more than 50 percent is in the tech-driven southvalley, which encompasses the Sandy and Draper submarkets. And this expansion is being met with adequate demand; net absorption growth in the southvalley area ranks fourth overall in North American markets, indicating that new commercial space is being filled.”
From an investor’s perspective, the report points out that Salt Lake City, Austin, Phoenix and Portland offer further growth potential and are attractive to occupiers. Eli Mills, a senior vice president and investment properties specialist in the Salt Lake office of CBRE made the following observation, “Over the past several years, there have been a great deal of new organizations investing in the Salt Lake commercial market. Utah has a high level of venture capital funding, which indicates a healthy high-tech sector that is primed for continued growth. When combined with the strength of our economy, these factors are attracting a new pool of out-of-state investors who see the market’s investment potential.”
CBRE Research analyzed the Tech-Thirty markets in terms of office-demand-generating high-tech software/services job growth and the resulting office rent growth. The top 10 markets can be seen in the below charts.
| High-Tech Software/Services Job GrowthRanked by growth rate, 2012 to 2014 | |||
| Rank | Market | 2012 to 2014 Growth Rate | 2011 to 2013 Growth Rate |
| 1 | San Francisco | 42.7% | 50.9% |
| 2 | Phoenix | 42.7% | 18.6% |
| 3 | Austin | 33.0% | 33.7% |
| 4 | Silicon Valley | 27.0% | 20.0% |
| 5 | Nashville | 22.7% | 29.6% |
| 6 | New York | 22.6% | 22.7% |
| 7 | Seattle | 18.3% | 17.0% |
| 8 | Indianapolis | 18.0% | 20.7% |
| 9 | Charlotte | 17.3% | 13.4% |
| 10 | Salt Lake City | 16.2% | 15.6% |
| Office Market Rent GrowthRanked by growth rate, Q2 2013 to Q2 2015 | |||
| Rank | Market | Q2 ’13 to Q2 ’15 Growth Rate | Q2 ’12 to Q2 ’14 Growth Rate |
| 1 | San Francisco | 30.7% | 34.6% |
| 2 | Silicon Valley | 28.1% | 21.4% |
| 3 | Raleigh-Durham | 23.4% | -0.9% |
| 4 | San Francisco Peninsula | 21.0% | 19.3% |
| 5 | Vancouver | 18.4% | 14.3% |
| 6 | Orange County | 16.1% | 5.2% |
| 7 | Boston | 14.4% | 11.2% |
| 8 | New York | 14.1% | 17.5% |
| 9 | Dallas/Ft. Worth | 13.4% | 12.0% |
| 10 | San Diego | 12.7% | 8.6% |
Source: U.S. Bureau of Labor Statistics, Statistics Canada and CBRE Research, July 2015.
The high-tech software/services industry has created 730,000 new jobs since 2009 and was the leading driver of U.S. office market demand, accounting for 20 percent of major leasing activity, through Q2 2015. In many leading tech markets, the sector is even more dominant: in Silicon Valley, Austin, San Francisco and Seattle, high-tech companies accounted for 88 percent, 63 percent, 62 percent and 60 percent of major leasing activity through Q2 2015, respectively.
The report also found a strong link between high-tech funding, high-tech employment and office market growth. A robust correlation between late-stage VC funding and high-tech hiring has important implications for the office market. Large late-stage funding deals allow companies to scale operations quickly, and expand their employment base, driving large office expansions and leasing transactions. Investors’ willingness to fund technology companies at rising valuations will be critical for continued growth in high-tech hiring and office space demand in primary tech markets.
“The high-tech industry is directly supported by consumer demand and a growing number of high-tech integrated businesses, which should keep the industry strong in the years ahead and provide further support for office markets in the Tech-Thirty,” said Colin Yasukochi, director of research and analysis for CBRE. “Commercial real estate investors must be mindful and have realistic expectations about this historically volatile industry underpinning the health of many ‘Tech-Thirty’ office markets.”