Tempe is one of the top tech markets for office rent growth. According to CBRE's Tech 30 report, Tempe office rents increased by 15.8% in the last two years—from quarter two 2016 to quarter two 2018—thanks to tech tenant activity. Phoenix's tech industry hub, Tempe is ranked fifth in the country for tech market office rent growth, behind Cambridge, Midtown Atlanta, South Orange County and Reston Washington DC. Supply shortages in Tempe are largely behind the significant rent gains, even with new speculative office construction activity.
“Demand is still outpacing supply,” Kevin Calihan, EVP at CBRE, tells GlobeSt.com. “Tempe is a relatively small existing market, although it has been expanding over the past couple of years with new construction. We continue to have more demand than we do supply. Tenants are looking for spaces in the highly desirable locations of North Tempe, close to Tempe Town Lake and Downtown Tempe with walkable amenities and proximity to light rail.”
The Tempe tech market is growing both from within—with expansion from existing tenants—and is seeing in-ward migration from San Francisco-based tech firms. This has created dynamic demand that has helped to strengthen the growing market. “Demand is so robust because it is equal parts expansions from companies that are already here and inward migration from the Bay Area,” says Calihan. “It is both factors impacting demand and creating a lack of demand.”
Tempe offers the affordability and labor resources that tech firms need for growth, but Tempe has also invested in infrastructure upgrades that have made it an attractive market. “The pillars of the Tempe market are labor affordability and quality of labor, which is very high, and a growing work force,” explains Calihan. “Those are the three major components that employers are looking for. If you factor that in with the specifics around the geography and the real estate in Tempe. Tempe has made massive investments in infrastructure, most pointedly the lake. You have all of this public infrastructure merging with a big university and a metro area. So, we have labor, affordability and a growing workforce, but we also have this great environment that Tempe has created.”
Specifically, tenants are looking for class-B-plus to class-A-plus office space with modern finishes. Landlords hoping to attract tech tenants, need to create quality, modern spaces. “The elite end of the tech firms want great environments for their people, and if you want to attract that tenant, you need to offer a great environment,” adds Calihan. “That varies from company to company, but for many that means amenities, quality work environment, safety of the work environment and access to transportation.”
Tempe, and Phoenix in general, is poised for long-term growth, and will likely to continue to see rent gains. “If there are tech companies that are growing and need to add quality labor and need to do it in a cost-effective manner, metro Phoenix is still a fantastic option,” says Calihan. “As long as the national economy continues to grow, Tempe should continue to grow proportionally higher than the national economy.”
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Kelsi Maree Borland
