Tech Sector's CRE Influence Grows

Michael Tucker mtucker@mba.org

October 04, 2018


The technology sector's impact on commercial real estate may appear sudden, but it has been building for years, reported Cushman & Wakefield, New York.

"Although we expect established markets like Silicon Valley [Calif.] to see continued investment, new tech hubs are emerging across North America, from Provo [Utah] to Philadelphia, sustaining a period of tech-driven, economic growth unseen since the dot-com boom of the late 1990s," said Cushman Principal Economist Ken McCarthy.

For example, the fastest-growing tech employment market since 2010 is Provo, Cushman reported. Though smaller than other tech-dominated markets, the number of people employed by Provo tech companies increased nearly 65 percent over the last eight years. The top markets for new commercial real estate construction are all cities where tech is crucial to the local real estate market, including Austin, Texas; Raleigh/Durham, N.C.; Seattle; and San Francisco.

McCarthy noted New York City has seen significant growth from the technology, advertising, media and information or TAMI sector. "If Silicon Valley is the brains of the tech sector, then New York City is the creative center," he said. "In this cycle, tech has been very important to New York City. TAMI employment growth has been much stronger than many other sectors and that growth has been centered in the Midtown South market, and that market in particular has seen significant growth in terms of both property values and rents."

Tech companies have changed the way they approach commercial real estate, said Cushman Senior Director of Northern California Research Robert Sammons. "Both start-ups and big tech companies have recognized they need a footprint in the central cities to keep attracting millennial workers, and as a result, they are taking large chunks of high-rise buildings and trophy assets in dense urban areas in addition to keeping their sprawling campuses in the suburbs," he said.

Sammons said tech companies are driving commercial real estate demand as they continue to hunt for space in hot markets. "With unemployment at 4 percent or lower in each of these markets, tech companies of all sizes are in a war for talent and must do their utmost to hold on to and recruit employees," he said. "That means the best salaries, the best incentives, the best space and the best location."

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