Friday, September 4, 2015

Office Space in Top Tech Cities Commands a Hefty Premium

by Steve Lubetkin,
Businesses looking for office space in the nation’s hottest tech markets should expect to pay a premium – and a hefty one in many of the top tech cities. Among them is Philadelphia’s University City, which at 45 percent had the fourth-highest rent premiums in North America.

The report, which analyzes the top 30 tech cities across the U.S. and Canada, showed an aggregate rent premium of 11 percent across all 30 markets—a number that jumps significantly higher in the hottest tech submarkets.

Vast differences in asking rates are emerging in Philadelphia, both downtown and in the suburbs, as tech tenant preferences and clustering drive demand in a few select submarkets, including the CBD and University City. Average office asking rent grew 3 percent from Q2 2013 to Q2 2015; yet in University City, rent grew 20.4 percent over the same time period, the eighth-most among top tech submarkets included in the study.  

With only 13 blocks of contiguous class A space of 100,000 square feet or more available in the Philadelphia market, new development is becoming more active. The Comcast Innovation and Technology Center and the expanding University City Science Center will add nearly 2.8 million square feet of office and lab space, furthering the tech presence in Philadelphia.

“Philadelphia is uniquely positioned for such strong tech growth because with education and medicine typically being among the strongest drivers for tech growth, Philadelphia has among the best in the world in both. With the continual investment by University of Pennsylvania and Drexel University, as well as the ongoing growth of world-class medical institutions like CHOP and Penn Medicine, along with the private investment from companies such as Comcast, the city will continue to see the tech sector grow and be a driving force in Philly’s strong economy.”

The high-tech software/services industry has created 730,000 new jobs since 2009 and was the leading driver of U.S. office market demand, accounting for 20 percent of major leasing activity, through Q2 2015. In many leading tech markets, the sector is even more dominant: in Silicon Valley, Austin, San Francisco and Seattle, high-tech companies accounted for 88 percent, 63 percent, 62 percent and 60 percent of major leasing activity through Q2 2015, respectively.

“The high-tech industry is directly supported by consumer demand and a growing number of high-tech integrated businesses, which should keep the industry strong in the years ahead and provide further support for office markets in the Tech-Thirty. Commercial real estate investors must be mindful and have realistic expectations about this historically volatile industry underpinning the health of many ‘Tech-Thirty’ office markets.”

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