Pittsburgh Number 3 Market in North America for Hi Tech Job Growth
Pittsburgh #3 Market in North America for High-Tech Job Growth
| November 15, 2017
Pittsburgh saw the third highest high-tech job growth in CBRE’s annual Tech-30 report, which measures the tech industry’s impact on office rents in the 30 leading tech markets in the U.S. and Canada.
Pittsburgh’s high-tech talent pool grew 31.4 percent during 2015 and 2016, behind only San Francisco (39.4 percent) and Charlotte (31.6%).
“With leading universities, a deep talent pool and relative affordability, Pittsburgh has been one of the nation’s major beneficiaries of the tech industry’s strong job growth,” said Jeffrey Ackerman, managing director, CBRE. “The addition of over 4,400 tech jobs since the start of 2015 has been a driving force behind leasing activity throughout the city. The two largest new office leases in Pittsburgh in 2017 have been tech companies. Demand for cutting-edge office space will continue to drive asking rates in the city’s Downtown Fringe and Oakland/East End submarkets, and it will likely spur new office building development. Our region’s tech workforce will continue to grow in the foreseeable future, fueling Pittsburgh’s urban resurgence,” added Ackerman.
According to CBRE’s Tech-30 report, the willingness of tech companies to pay a premium for office space in the hottest tech submarkets is starting to spill over into neighboring submarkets as available space in tech hotspots is dwindling. As a result, adjacent submarkets and traditional downtowns with skylines—rather than the brick-and-beam buildings tech companies have demonstrated a preference for—are primed to benefit, creating opportunity for commercial real estate investors.
“Office rents have increased in every primary tech submarket over the past two years, illustrating stiff competition among tenants to locate in talent-rich areas such as Tempe, East Cambridge, Minneapolis’s North Loop and South Orange County, all of which have very low office vacancy,” said Colin Yasukochi, director of research and analysis for CBRE and the report’s author. “If tech companies that are used to paying a premium for space in the top tech submarkets are forced to move to adjacent submarkets in order to expand, we could start to see significant rent growth in those more traditional markets as well.”
The research found that the top tech submarkets with the lowest vacancy rates are East Cambridge (3.3 percent), Palo Alto (3.7 percent) and Mount Pleasant/False Creek in Vancouver (4 percent) as of Q2 2017. Pittsburgh’s top tech submarket, Oakland/East End, had a vacancy rate of 7.3 percent as of Q2, compared to 11.8 percent for the overall market.
The office rent premium paid by tenants in these hot tech markets continues to widen, with average rents for top tech submarkets increasing faster than their broader markets, with an average premium of 16.2 percent (also based on Q2 2017 data). That figure jumps substantially for markets at the top of the Tech-30 list, including East Cambridge (120 percent), Palo Alto (71 percent) and Santa Monica (92 percent). The average asking rent in Oakland/East End has surged 36 percent since 2014.
Conversely, several emerging tech submarkets have rent discounts, including Hillsboro, Oregon (-19 percent) and Northeast Charlotte (-18 percent).
From an investor’s perspective, markets that are attractive to occupiers and offer the best combination of low office rents and a growing high-tech labor pool, such as Portland, Raleigh-Durham, Dallas/Ft. Worth, Charlotte and Nashville, have the greatest growth potential.
“The creation of new market opportunities via disruption and a growing number of industries integrating technology into their business models support an optimistic outlook for continued growth ahead. Commercial real estate investors should benefit from the trends that have given the tech industry greater stability and a wide economic base compared with previous economic cycles,” said Chris Ludeman, Global President, Capital Markets, CBRE.
“Ups and downs are a natural part of the business cycle, and real estate investors should manage their risk and exposure to the most volatile sectors of the tech industry accordingly. Tech-30 office markets should expand further in the near term, albeit at a slower pace. Realistic growth expectations, valuations and viable exit strategies by tech firms will protect investors from potential losses that were unforeseen during the last tech cycle,” added Mr. Ludeman.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.