How Does Tech Influence CRE in North America?

Cushman & Wakefield details the top 25 North American tech hubs and their impact on commercial real estate, particularly the office sector.
Ken McCarthy, principal economist & Americas head of applied research, Cushman & Wakefield
Ken McCarthy, principal economist & Americas head of applied research, Cushman & Wakefield

Cushman & Wakefield offers a list of the top 25 technology hubs in North America, along with their impact on the commercial real estate sector, in the firm’s new Tech Cities 2.0 annual report.

As noted in the study, “The tech sector has become a primary driver of economic growth in North America. As such, it is now more important than ever to the commercial real estate sector.”

Markets like Silicon Valley and Seattle have long been synonymous with the tech industry, but neither reputation nor size played a central role in the creation of the top 25 list. This year, the Tech Cities rankings are based on the importance of the tech sector to the local economy and CRE markets, taking into consideration employment, occupations, venture capital investment and demographics statistics. With those factors in mind, Cushman & Wakefield divided the cities into three categories: tech is critical; tech is a key driver; and tech is important.

Per the report, cities where tech is critical to the local economy and CRE markets include: Austin, Texas; Boston; Provo, Utah; Raleigh/Durham, N.C.; and Salt Lake City. “Who would have thought that two cities from Utah would make the list of the top 25 tech centers in the U.S.? Yet, both Salt Lake City and Provo are on the list because of the rapid growth in tech employment and high levels of VC investment,” Ken McCarthy, principal economist & Americas head of applied research with Cushman & Wakefield, told Commercial Property Executive. San Diego, San Francisco, Silicon Valley, Seattle and Metro Washington, D.C., complete the tech critical group.

The cities falling into the category where tech is a key driver are: Atlanta; Dallas/Fort Worth; Denver; Minneapolis/St. Paul; Montreal; Portland, Ore.; Toronto and Vancouver. The final group of cities on the list, those locales where tech is important but shares the spotlight with other important industries, includes: Baltimore; Charlotte, N.C.; Chicago; Greater Los Angeles; New York City; Philadelphia and South Florida.

Cushman & Wakefield’s Tech Cities reports over the next couple of years may see some new additions. “Although they did not make the top 25 list for one reason or another, Detroit, Phoenix and Houston all rank high in the number of people working in tech occupations, which is why they are in the group of Cities to Watch,” McCarthy said. Pittsburgh and Tampa, Fla., are also on the watchlist.

The top tech advantage

As noted in the report, Tech 25 cities have outperformed other North American markets by a notable margin in the areas of office rent growth and average sales price per square foot.

Between 2010 and 2018, rent growth for Class A office properties increased 27.6 percent in Tech 25 markets, compared to 26 percent in all other U.S. markets. And the average asking rent for Class A space in tech critical cities, key driver cities and tech important cities increased a respective 48.6, 29.4 and 28.7 percent. Class A office assets in the leading tech cities also carry higher price tags, recording an average sale price of $316 per square foot in 2018, compared to the $248 per square foot for Class A properties in the remaining U.S. markets.

“As tech has spread beyond its Silicon Valley roots, the dynamic growth that this sector is engendering in the economies of both the U.S. and Canada will continue to boost demand for CRE, especially in the Tech 25,” according to the report.

Image courtesy of Cushman & Wakefield