Tightening Supply for Highly Skilled Labor Means Rising Costs in 50 Tech Talent Markets Across the U.S. and Canada, According to CBRE’s Annual “Scoring Tech Talent” Report

San Francisco Bay Area and Seattle remain the highest quality despite cost escalations, with the best value markets led by four Canadian markets

Companies in pursuit of highly skilled tech talent – spanning every industry today – might be in for more sticker shock. Combined talent and occupancy costs are up by as much as 12.5 percent over last year as competition for tech talent has heated up, according to CBRE’s sixth annual Scoring Tech Talent report.

Taking both talent and real estate costs into consideration, the “typical” 500-person tech company needing 75,000 sq. ft. of office space can expect a total annual cost to range from $27 million in Montreal, the least expensive market, to $59 million in the San Francisco Bay Area, the most expensive market. Just a year ago, the total costs ranged from $24 million in Vancouver to $57 million in the San Francisco Bay Area.

While value is a key driver when it comes to choosing an office location, companies are willing to pay a premium to access the highest quality tech talent, as strong demand for skills such as software development, hardware engineering and information security is outpacing supply.

Canadian markets were among the best-value markets, due in part to the strong U.S. dollar, with Toronto, Vancouver, Montreal and Ottawa offering high-quality talent at relatively low cost. In the U.S., Indianapolis, Pittsburgh and Detroit were strong value markets.

“Strong economic conditions and tightening labor markets are constraining tech talent job growth,” said Colin Yasukochi, director of research and analysis for CBRE in the San Francisco Bay Area.

CBRE's interactive Tech Talent Analyzer found the San Francisco Bay Area, Austin and Seattle to be the most competitive markets to hire tech talent based on labor market supply/demand, wage costs and talent quality.  

“Only 37 percent of all tech-talent workers are employed in the high-tech industry, meaning tech companies must compete with other industries that employ the remaining 63 percent of tech workers. In addition, the unemployment rate for college-educated workers is around 1.8 percent in the U.S., down from 2.3 percent just a year ago, further stiffening competition. All of this means that, more than ever before, top tech talent comes at a cost today,” Mr. Yasukochi added.

Tech Talent Scorecard

The top five markets for tech talent in 2018 were the San Francisco Bay Area, Seattle, Washington, D.C., Toronto (the first time a Canadian market made the top five) and New York.

The Tech Talent Scorecard is determined based on 13 unique metrics, including tech talent supply, growth, concentration, cost, completed tech degrees, industry outlook for job growth, and market outlook for both office and apartment rent cost growth. The top 10 cities on the Tech Talent Scorecard were all large markets, each with a tech labor pool of more than 50,000.

Top Momentum Markets

Tech job growth gained momentum in 23 of the 50 markets. This means job creation grew faster in the past two years (2016-2017) compared with the prior two-year period (2014-2015). Tech labor concentration – or the percentage of total employment – is an influential factor in how “tech-centric” the market is and its growth potential. Ottawa and the San Francisco Bay Area comprise the largest concentrations of tech talent on the list at 11.2 percent and 9.8 percent, respectively – both more than three times the national average of tech talent density.

CBRE’s report evaluated large (50,000+ labor pool) and small markets (less than 50,000 labor pool) separately. The largest markets increased their tech labor pools by 15-52 percent, including the San Francisco Bay Area (31 percent), New York (17.2 percent), Toronto (51.5 percent) and Dallas Ft. Worth (15.3 percent). Seattle also grew at a rapid pace, with a 19.4 percent increase, and Atlanta saw a 34.7 percent increase in tech talent.

Charlotte, which moved from a small market to a large market this year, grew the fastest of any of the 50 markets in the report, with its tech talent pool increasing by 58.8 percent.

Smaller tech talent markets grew at a fast pace as well. Nashville grew at the fastest rate among the small markets at 43.3 percent, followed by Madison, Wisconsin, at 39.5 percent and Jacksonville, Florida, at 38.9 percent.

“The highly competitive and supply-constrained market for tech talent, along with advanced communications infrastructure, has accelerated the expansion of tech talent pools into smaller markets, such as Madison and Nashville. These previously under-utilized regions are gaining demand for tech talent from both start-ups and established companies,” said Mr. Yasukochi. “Accordingly, demand for commercial real estate to accommodate this growing workforce is on the rise.”

Commercial Real Estate Market Impact

The high-tech industry has added 682,000 jobs in the past five years and has been the top driver of office leasing activity during that time. The high-tech industry’s share of major leasing activity nationwide increased to 20 percent in 2018 – almost double what it was in 2011 (11 percent) – and is the largest single share of any industry. 

Accordingly, office rents are up and vacancies are down in many of the tech talent markets, with the biggest impact in the most tech-concentrated areas where tech clusters have formed or are forming. In top markets, where tens of thousands of workers have been added in the past five years, significant demand for office space raised rents to their highest levels and pushed down vacancy rates to their lowest levels.

“Tech employment growth has a multiplier effect that positively impacts economic growth, which in turn can have an immense impact on commercial real estate,” said Mr. Yasukochi.

Rent growth is most prominent in the large tech markets, with office rents 50 percent higher than five years ago in the San Francisco Bay Area and Orange County. But the decrease in vacancy rates is present across both large and small tech markets. Vacancy rates in Madison, Vancouver and Charlotte are the lowest of the top-50 tech talent markets, with large markets like New York, Toronto and the San Francisco Bay Area not far behind. 

The 10 markets with the most significant five-year rental rate growth include:

View the full report here. To view individual market statistics and rankings, including rankings on the Scorecard, access CBRE’s Tech Talent Analyzer.