Tech Firms' ‘Outsized' Effect on Premium Office Space
Michael Tucker firstname.lastname@example.org
Though traditional occupiers such as finance and law firms occupy many of America's most desired office addresses, technology firms are quickly disrupting this status quo, reported JLL, Chicago.
JLL said technology is having an "outsized" effect on the priciest U.S. office space and noted five of the top 10 most expensive streets are in tech hub cities.
"As tech companies mature, their space needs begin to mirror those of traditional white-collar industries in these expensive locations," JLL Director of U.S. Office Research Scott Homa said. "Sand Hill Road [in Menlo Park, Calif.] is no longer the only example of this. We see it in cities like Boston, Cambridge [Mass.] and Austin [Texas] where major tech players have leased large blocks of premium space."
JLL Managing Director of Capital Markets Frank Petz said he has seen shifting tenancy and more migration between Cambridge and Boston. "The proliferation of life science players in Cambridge has dislodged many traditional office users and even tech companies," he said. "Cambridge now has vacancy rates near zero and rents at an all-time high and Boston is benefitting as tech tenants cross the river to take advantage of the value proposition the city offers."
JLL reported "exceptional" pre-leasing on new prime office developments. For example, FMC Tower on 30th Street in Philadelphia "cemented" University City as a very desirable office location. That street is now the most expensive in Philadelphia, a city seeing tech, education and health expansion. Vacancy on 30th Street dropped to just 7.1 percent and rents carry an 83.9 percent premium, JLL said.
Similarly, Penn Avenue in Pittsburgh, Pa., is now the city's most expensive corridor in part because Google's Pittsburgh office anchors the East End Bakery Square development. Rents on Penn Avenue carry a 72.1 percent premium over the rest of the city, JLL said.
"In the battle for talent, [technology] companies are always looking for something new to give them an edge," JLL Managing Director of Agency Leasing Chris Roeder noted. "Developers recognize that these high-end amenities--roof decks, open and collaborative space--will draw the big-name tenants that help developments stand out."
Across the U.S., just 12.8 percent of the nation's most expensive office real estate is vacant, JLL reported--a full 250 basis points lower than the U.S. average.