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Looking For Office Space in Top Tech City? Be Prepared to Pay a Hefty Premium

New report from CBRE Group, Inc. shows San Diego ranked 10th in office rent growth

San Diego County CA— Businesses looking for office space in the nation’s hottest tech markets should expect to pay a premium – and a hefty one in many of the top tech cities, 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, showed an aggregate rent premium of 11 percent across all 30 markets.

San Diego ranked 10th in office rent growth, growing12.7 percent between Q2 2013 and Q2 2015. At the end of Q2 2015, the average asking rent was $29.88, the vacancy rate was 12.6 percent, and there was 885,000 sq. ft. of space under construction.

Sorrento Mesa, San Diego’s top tech submarket, had an average asking rent of $32.76 per annum, which is an 11.8 percent increase over the last two years and a vacancy rate of 14.5 percent as of Q2 2015. Sorrento Mesa was the 13th-ranked submarket of the top tech submarkets in each market in terms of office rent growth from Q2 2013 to Q2 2015, at 11.9 percent.

San Diego’s high-tech software/service job sector grew 7.6 percent from Q2 2013 to Q2 2015. Despite out-migration of some mature tech companies, many employees have remained in San Diego, fueling rapid growth at younger innovative tech companies, primarily in Sorrento Mesa.

Technology-based genomics projects by life science companies are increasing significantly expanding the region’s need for and pool of tech talent. The local concentration of military operations supports a thriving defense industry and has established San Diego as a center for cyber-security excellence, with major local universities launching cyber security programs to fuel the growing demand for such skills.

“It is great to see the velocity of growth in the local tech sector companies,” said Andrew Ewald, vice president and tech and media expert for CBRE in San Diego. Typically, our growth is from local companies that are expanding organically in San Diego, but recently we have also seen a tremendous amount of new companies that have relocated or expanded their business operations to the Sorrento Mesa area. The epicenter of the tech market is receiving global recognition, which is attracting a number of new companies to this market. From a real estate perspective, this growth is driving demand for quality Class A buildings that are rich with amenities, as well as unique, older product that is being converted into more creative and collaborative workplaces. As Sorrento Mesa continues to see growth in its tech community, the war for talent will continue to drive decision makers to demand quality building opportunities to recruit and retain. I expect to see this continued growth in this tech sector over the next 24 months.”

High-Tech Software/Services Job Growth

Ranked 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 Growth

Ranked 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 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.”


About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue).  The Company has more than 52,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 370 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.