Phoenix held its own among top tech markets in North during this year’s first half, sustained by the Valley’s growth in both tech employment and office lease rates, according to CBRE’s annual Tech-30 report.

Phoenix’s 8.4 percent growth in tech jobs in 2020 and 2021 helped the market continue to post positive office-rent growth of 4.1 percent over the past two years. Phoenix registered slightly negative net absorption in that timeframe, which followed national trends. Net absorption, a proxy for office demand, measures the net amount of space newly occupied against that newly vacated.

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Tempe, the Valley’s leading tech submarket, ranked 10th in office-rent growth (6 percent). The city’s proximity to Arizona State University and limited office availability have helped the submarket outperform the overall market.

“Tempe is being affected by two significant trends. The new demand for office space is still very strong. At the same time, sublease availability is reaching all-time highs,” said CBRE’s Executive Vice President Kevin Calihan. “High-quality space is still in demand, but the market is very competitive as over two million sq. ft. of newly developed space and sublease space has come on the market in the past 12 months. The trendlines indicate that supply will outpace demand over the next 12 months. We don’t know how much excess supply there will be.”

The 11th annual edition of CBRE’s Tech-30 report outlines how the tech industry’s share of U.S. office-leasing activity slipped in the first half of this year into a tie with two other major industries, underscoring that the tech industry’s often-unmatched impact on the office market has receded a bit this year.

Still, tech is tied with Finance & Insurance and with Professional & Business Services for the largest share of office leasing activity in this year’s first half at roughly 16 percent apiece. For tech, that’s a decrease from a leading 21 percent share in 2021. The last time tech’s share was lower than its current level was in 2017, when it was 17 percent. Much of the industry’s reduced momentum this year can be attributed to a pullback in leasing this year by large tech companies.

The Tech-30 report measures the industry’s impact on office demand and rents in the 30 leading tech markets in the U.S. and Canada, as well as select tech-heavy submarkets. CBRE’s analysis found that, over the past two years, more than two thirds of the top 30 North American tech markets registered office-rent growth. Seven of those increased by double-digit percentages.

In that span, several tech markets registered positive net absorption, meaning companies in those markets moved into more space than they vacated. Six Tech-30 markets exceeded that threshold: Silicon Valley, Raleigh-Durham, Nashville, Vancouver, Austin and Salt Lake City. So did seven tech submarkets: Nashville’s Central Business District, Vancouver’s Broadway Corridor, Portland suburb Hillsboro, Raleigh-Durham’s RTP/I-40 Corridor, Oakland/East End in Pittsburgh, Salt Lake City’s South Valley and Midtown Atlanta.

Meanwhile, U.S. tech job growth slowed to a 2.1 percent year-over-year gain in this year’s first half from a 4.5 percent pace in last year’s second half. Hiring momentum persists in many markets, including a dozen top U.S. and Canadian tech hubs that registered double-digit percentage gains in tech employment in 2020 and 2021, led by Vancouver, Toronto, Austin, Seattle and Montreal.

Phoenix’s tech workforce of 125,606 people amounts to 10.6 percent of all office-using positions in the Valley. Another growth driver: Tech companies claimed nearly half of the $477 million in venture capital funding awarded to Phoenix-area companies in this year’s first half.

“Most startup companies are back in the office,” said CBRE’s Sales Assistant Tim Kempton. “These are generally smaller teams that prefer working in person. It is because of a collaborative culture and their desire to grow rapidly.”

Sublease Space Rises Nationally

Office space available for sublease in the Tech-30 markets increased 4.9 percent to 142 million sq. ft. in this year’s second quarter from a year earlier, the highest total since CBRE started tracking the figures in 2012. Tech companies account for 20 percent of that total. Leases on nearly half of that tech-industry sublease space are scheduled to expire by 2025, reverting to the building owners.

Submarkets Outperform

Leading tech submarkets, which often are located near universities, often feature rising rents, scant vacancy and high-quality office space. CBRE has found that office lease rates in leading tech submarkets carry a 10.5 percent premium, on average, to rates for their cities as a whole as of this year’s second quarter. Those with the largest premiums are East Cambridge in Boston (87 percent), Santa Monica near Los Angeles (59 percent), Philadelphia’s University City (56 percent) and Palo Alto in Silicon Valley (50 percent). Tech submarkets also tend to generate some of the strongest rent gains in their cities.

CBRE’s report also identifies markets well positioned for resiliency and continued growth based on tech job growth and momentum, office market performance and demand recovery. Those include Vancouver, Silicon Valley, San Diego, Boston and Raleigh-Durham.

To read the Tech-30 report, click here.