Unaffordable Office Space Drives Tech Industry Growth in Secondary Markets

As top tech-hubs like California’s Bay Area become increasingly unaffordable, a new Jones Lang LaSalle report finds evidence that secondary markets will continue to experience accelerated industry growth. According to the 2015 Technology Office Outlook report, markets such as New York, San Francisco, and Silicon Valley, had the greatest startup momentum (as measured by access to capital, innovation, and top talent), but were also the most expensive. These prices have made secondary and tertaitry technology markets look considerably more attractive, the report finds.

The report, which is released annually, seeks to understand the locations where the real estate costs are the highest – and where costs are growing the fastest. By analyzing the areas that technology companies are leasing space and expanding, the report also identifies high-opportunity markets where firms can find both value and access to talent.

Within primary tech hubs, the fast growth of the technology industry has bred highly competitive leasing conditions. This is particularly true in places such as Silicon Valley, San Francisco, and New York, while still a factor in regions such as Boston and Los Angeles. Those local markets with existing technology clusters and more affordable amenities will experience industry growth as firms explore new markets for expansion, according to the report.  For example, locations such as Atlanta, Dallas, and Raleigh-Durham, where average rents are in the low $20 per square foot range as opposed to the mid-$50 per square foot averages seen in the Bay Area and New York City, are seen as increasingly attractive by technology companies.

The report also finds evidence that although many technology companies continue to be firmly rooted in the Bay Area, they are expanding elsewhere. Five of the region’s largest technology companies – Google, Apple, Oracle, Yahoo, and Facebook – closed 20 lease transactions across nine markets in 2015. During the same period, 34 other technology companies opened new locations across 19 different markets such as Detroit, Orlando, and Phoenix.  Since 2014, the number of unicorns – those companies valued at $1 billion or more – has tripled, reaching a total of 76. And, while more than three-quarters of unicorn companies were located in San Francisco and Silicon Valley in 2014, roughly 60 percent were located in the region in 2015. 

To help growing startups and established technology firms determine the ideal locations for their continued expansions, the report includes a locator matrix that uses factors to assess startup opportunity and costs. To assist real estate investors in determining momentum and potential investment opportunities, the report also includes a market score that measures job and industry growth, startup friendliness, market factors, and the region’s talent pool. Individual profiles for each of the regions analyzed in the report are also included in the report.

Read the 2015 Technology Office Outlook report here: http://www.us.jll.com/united-states/en-us/Documents/technology-trends/jll-us-2015-technology-trends-market-outlook.pdf