Phoenix ranks among the most active tech markets in North America for office leasing activity, rent growth and high-tech job growth this year, according to CBRE’s annual Tech-30 report.

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Phoenix’s 13.4% tech job growth rate in 2021 and 2022 propelled the city to the #10 ranking this year for tech industry growth from #13 last year. It also had the 13th highest office-rent gains (6.3%) among Tech-30 markets.

“High-quality space is still in demand, and increasing rents suggest a steady need for office space despite negative absorption trends,” said Tim Kempton, associate at CBRE.

Tempe remains the Valley’s premier tech submarket, ranked fourth among Tech-30 submarkets in rent growth gains (14%). Leading tech submarkets located near universities and major tech employers, like Tempe and its proximity to Arizona State University, typically feature higher rents, lower vacancy and high-quality office space than their cities. Nationally, CBRE found that office rental rates in leading tech submarkets carried a 10.2% premium in Q2 2023, compared with rents for their cities as a whole.

The report, now in its 12th year, measures the tech 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.

Tech’s share of total office leasing activity has increased each quarter this year, even amid reduced U.S. office leasing activity overall. In Q3 2023, the tech industry reclaimed its position as the top sector in office leasing activity after losing its lead in Q1 2022. Tech’s share of office leasing was 16.5% (7.3 million sq. ft.) in Q3 2023, up from a 10-year low of 9.3% (3.9 million sq. ft.) in Q4 2022. Tech moved back ahead of the finance and insurance sector, which claimed a 15% share of Q3 office leasing activity.

The report features a new analysis of the correlation between venture capital (VC) funding and leasing activity by AI companies. The top five U.S. markets to receive VC funding across all sectors between H1 2019 and H1 2023 (San Francisco, Silicon Valley, New York, Boston and Los Angeles/Orange County) also have the highest amount of office leasing activity by AI companies in that timeframe, according to CBRE’s analysis of its office leasing and CB Insights data.

Since 2019, AI companies have leased 7.5 million sq. ft. of office space across the top five markets. San Francisco and Silicon Valley were the most active markets for AI leasing by volume, each with over 2 million sq. ft. leased.

Total U.S. tech industry employment remains well above pre-pandemic levels, even though tech software and services employment growth decelerated to 0.4% in H1 2023 from 3% in H2 2022. September 2023 marked the fewest tech industry layoffs since June 2022, according to CBRE’s analysis of data from job search firm Challenger, Gray & Christmas.

Phoenix’s tech workforce of 103,176 people amounts to 8.5% of all office-using positions in the city. Another growth driver: Phoenix-based companies claimed $191 million in venture capital funding in this year’s first half, 60% went to tech companies.

“Venture capital is crucial for the viability of tech companies in their nascent stages. Due to the increased funding to Arizona-based companies, mainly attributed to funds such as PHX Ventures and AZ-VC, we continue to see an upward trend in high-tech job growth,” added Mr. Kempton.

To read the Tech-30 report, click here.