Phoenix lands at number two on CBRE’s annual Tech-Thirty list, which analyzes the 30 leading technology markets in the U.S. and Canada in terms of high-tech software/services job growth.
Second only to San Francisco, the Valley continues to see the strongest tech-sector job growth in North America, reporting 44.5 percent job growth and more than 15,000 new jobs from 2013 to 2015.
“The Phoenix tech sector continues to gain momentum reflected by both significant job growth and an ever-strengthening office market,” said Kevin Calihan, senior vice president n CBRE’s Phoenix office. “The Valley has firmly established itself as growth market for tech firms; and, as our local business, education and economic development communities continue to work together to create opportunities, these firms will keep coming.”
Tech-related office leasing accounted for 20 percent of all office leasing in the U.S. in the first half of 2016, up from 18 percent in 2015, despite an overall slowing in tech job creation.
CBRE’s report showed that the hottest tech submarkets where tech job creation continues to boom—led by East Cambridge, Palo Alto and Santa Monica—are significantly outperforming their overall markets in terms of leasing activity and rent premiums, fueled primarily by the demand for highly-skilled tech talent. In metropolitan Phoenix, downtown Tempe was the top performing tech-submarket in terms of office fundamentals, followed closely by downtown Scottsdale, downtown Phoenix and 101 Corridor in Chandler.
“Metro Phoenix has established itself as a magnate for tech users, which has had significant, positive impacts on the Valley’s office market,” said Calihan. “Tempe has had a lot of success, as evidenced by strong office fundamentals; but there is also significant demand from tech companies wanting to locate in adjacent submarkets like downtown Scottsdale, downtown Phoenix and the 101 Corridor in Chandler.”
Office Rents in the Tech-Thirty
The CBRE report shows that office rents for the top submarket in each of the 30 markets analyzed increased in all but one submarket between Q2 2014 and Q2 2016. The highest rent growth in this period occurred in both established and up-and-coming tech submarkets, illustrating stiff competition among tenants to locate in areas rich in talent such as University City, Oakland/East End Pittsburgh, East Cambridge, Palo Alto and Tempe. Average office rents in Tempe rose 24.5 percent to $25.74, compared to 11.6 percent to $23.61 for the overall Phoenix market over the same time period. From Q2 2013 to Q2 2015, Phoenix office rents grew 8.3 percent.
Job Growth in the Tech-Thirty
CBRE also analyzed the Tech-Thirty markets according to high-tech industry job growth. San Francisco topped the rankings for the fifth consecutive year; its high-tech job base has grown 47.0 percent between 2013 and 2015, while average asking rents increased by 22.7 percent from Q2 2014 and Q2 2016. Eighteen markets outperformed the U.S. average of 13.7 percent job growth in high-tech software/services, with Phoenix (44.5 percent), Austin (33.3 percent), Charlotte (33.2 percent), and Indianapolis (27.9 percent) rounding out the top five.
Over the past five years, the software/services industry created 780,000 new jobs at a 7.3 percent growth rate and accounted for nearly 20 percent of major leasing activity. In H1 2016, tighter labor and volatile capital market conditions led to job creation slowing to a 4 percent annual growth rate, which had a slight impact on certain office markets, like Washington, D.C., New York and the San Francisco Bay Area.
“Advanced technology has integrated itself into business productivity and although the talent pool is limited, strong demand for technology services from both businesses and consumers is expected to support hiring by high-tech firms. The skills of the available labor pool do not appear to align with available jobs, causing a structural barrier to growth,” said Colin Yasukochi, director of research and analysis, CBRE. “This demand for technology should support growth among high-tech companies and high-tech office market clusters.”
