The National Trend: Employment Growth Forges New Tech Hubs
The power of technology has grown explosively over the past few decades and is now integral to our daily professional and personal lives. As recently as ten years ago, tech largely comprised hardware, software and telecommunications. These classic tech industries remain robust and relevant, yet tech has rapidly evolved to include new products and services inextricably bound to these basic platforms.
Tech is a potent economic engine – it is a fast-growing, high-wage, office-occupying sector. According to CompTIA’s Cyberstates 2019 report, tech employment reached an estimated 11.8 million workers in 2018. This represents a 2.3% year-over-year increase (approximately 261,000 jobs) and accounts for 7.6% of the overall U.S. workforce. From 2010 to 2018, 1.9 million tech jobs were added nationally, more than 200,000 per year. Looking ahead, the technical workforce is projected to increase by 13.2% between 2016 and 2026. Further, tech workers are well-compensated. Their national median salary in 2018 was $81,907, which is nearly double the overall median of $42,700.
Tech’s economic clout has shaped office market fundamentals in established and emerging tech hubs. Millennials—a critical component of the tech industry’s workforce—so far have demonstrated a strong preference for living and working in urban settings. Tech firms have responded by locating disproportionately in central business districts, though that is not the case in every market. Also, the coworking boom has been synchronous with tech’s rise because it addresses the demand for immediately-available space with flexible term and scalability, often serving as a gateway through which firms may quickly establish a footprint in a new market. Finally, tech firms have disrupted traditional office space buildouts, often eschewing core office towers for more open, collaborative, highly-amenitized space.
It is well established that three top tech hubs are located in California. San Jose boasts the highest tech concentration, at 31.6% of its workforce and 60% of its regional economic output. San Francisco and San Diego also are top tech markets. These California locations, plus Boston and Washington, are longstanding tech hubs that have been joined more recently by Seattle and Portland. But as the sector has grown, technology firms have expanded their scope of operations further, focusing on metros with high quality of life and lower costs. Notable “new tech” hubs—which are able to draw both seasoned tech professionals and Millennials to firms in need of top talent—include Austin and Denver.
Featured Markets: Austin and Denver
The technology sub-sector of the commercial real estate market has become as associated with Austin as Houston is with the oil industry. The tech industry has grown nearly 25% in the past five years in Austin. As the sector continues to grow, its economic impact has been reflected in the median tech wage of $86,458 (see the adjacent exhibit), which is 96% higher than the median state wage. In fact, in 2018 alone, the Austin Chamber of Commerce announced 46 relocations to Austin for companies in the tech sector (exclusive of firms opening second offices in the city). Many of these companies look to Austin for its youthful feel and reputation for innovation.
Within the city itself, tech companies continue to seek space within the CBD while remaining open to suburban campuses (highlighted by Apple’s announced $1 billion campus in North Austin that is projected to bring 15,000 new jobs to the area). Since 2014, large tech users including Facebook, Google and Indeed have taken large blocks of space within Austin’s CBD. Nearly half of the tenants in the market for downtown space in Austin are tech-related; when additional downtown-adjacent submarkets are included, that share rises to nearly three-fourths.
What Are the Implications for Our Clients?
Asset owners in many markets face stiff competition from coworking providers when working with prospective tech tenants. Successful negotiations with small tenants might include a relatively short-term lease with first right of refusal on expansion space. Signing larger tenants likely will hinge on tenant improvement allowances necessary to realize the collaborative, amenitized buildouts that have become the tech standard. Some asset owners may choose to build out, lease and manage in-house coworking suites or entire floors, taking their product directly to the customer. Tech tenants can anticipate competition for space in the most desirable neighborhoods and buildings, so they should plan well in advance for relocations and expansions. The built environment, both in terms of carefully-selected locations and curated space, has become a company’s most potent recruitment and retention tool.