PHOENIX—During the past year, 73% of the sector's office leases represented occupancy growth. With Northern California holding nine of the top 15 most expensive in-demand technology submarkets—led by Downtown Palo Alto at $98.68 per square foot—tech firms are looking to other zip codes to fuel their future, according to JLL's 2015 Technology Office Outlook. Expansion for the technology industry in 2015 is no longer just about the convenience of cheaper rents or accessing new talent pools in an exploratory exercise. It's a strategic necessity, with firms starting to plant roots,
Keith Lammersen, JLL broker, tells GlobeSt.com: "Of special note is that the average office rent in Phoenix's most expensive tech submarket (Tempe, AZ) is 78.5% cheaper than Silicon Valley's most expensive submarket (Menlo Park, CA) and 43% cheaper than Seattle-Bellevue's Lake Union. That's a major benefit for tech companies and a tremendous boon for Phoenix."
Fortunately, according to JLL's report, the same economic forces that are pushing rents higher along familiar Northern California streets such as Sand Hill Road and Hamilton Avenue—which at $141.60 and $124.44 per square foot respectively are the most expensive in the United States—are making it possible for the sector to spread the wealth into markets such as Atlanta, Detroit, Orlando and Phoenix. In the past year, 34 technology companies expanded into new locations across 19 markets with more than 2.1 million square feet of office space.
"Technology companies and startups need to look at a full range of options as part of their location strategy," said Steffen Kammerer, leader of JLL's technology practice group. "These companies have to grow. They can still hold a headquarters in the Bay Area, but their offices in secondary or tertiary markets can sometimes support larger staffs or hold just as much strategic importance to their business plans. We're seeing this now more than ever."
Venture capitalists are even casting a wider net across the United States. Last year, 75.8% of unicorn companies were located in San Francisco and Silicon Valley; however, that number has shrunk to 59.2% with a remaining share in Utah, Oakland-East Bay, Boston, Washington D.C. and Orange County.
"Other markets are not competing against Silicon Valley. They're competing to be more like Silicon Valley," said Julia Georgules, director of US office research for JLL. "Technology has become so pervasive in business that it's now becoming a part of every industry and every market. This is generating a new momentum and energy in smaller markets and making them attractive to the type of talent that the technology industry is recruiting. It's not necessary to be located in San Francisco or Silicon Valley anymore as a result, although you'll still find great opportunity in those markets."
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Lisa Brown
Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.
