Cushman & Wakefield has released Tech Cities 2.0, an annual report that identifies existing and emerging tech centers increasingly driving the North American economy and details their impact on the commercial real estate sector.
A follow-up from last year’s inaugural Tech Cities 1.0 report, this year’s research reviewed all major North American markets, and groups the top cities into three categories based on how important the tech sector is to the local economy and real estate market: ‘tech is a critical component’ / ‘tech is a key driver’ / ‘tech is important’.
Minneapolis-St. Paul, for the second consecutive year, has made the global real estate service provider’s list of the Top 25 tech cities, thanks in large part to its low cost of living, tech start-up activity and well-educated workforce.
“The Twin Cities is home to a cadre of home-grown Fortune 500 companies, including Target, 3M, UnitedHealth Group and Medtronic, and these and other firms drive activity in our local tech sector,” Patrick Hamilton, Director of Research in the Minneapolis-St. Paul office, said. “The market’s highly-educated workforce, and diverse, tech-driven industry base has lured tech stalwarts such as Amazon, which continues to expand in the region.”
A little over one-fifth of the Twin Cities metro population is made up of Millennials, and more than two-fifths of all workers in the market have a Bachelor’s degree or higher.
“As tech companies continue to dominate headlines and grow, a key question is how this affects commercial real estate. Building upon our inaugural Tech Cities report from last year, Tech Cities 2.0 offers new data and a further in-depth analysis of the marketplace,” Revathi Greenwood, Cushman & Wakefield’s Americas Head of Research, said.
“Tech is no longer limited to just traditional technology companies – media companies, retailers and even law firms are competing for the same spaces and talent as traditional tech companies. While the result can be seen in nationwide trends, we’ve identified key insights that impact companies across every industry,” Greenwood said.
Ken McCarthy, Cushman & Wakefield’s New York-based Principal Economist and Applied Research Lead for the U.S. said Tech Cities 2.0 demonstrates the profound impact the tech sector has had on commercial real estate in what appears to be one fell swoop but has been building since the financial crisis of 2008.
“Although we expect established markets like Silicon Valley to see continued investment, new tech hubs are emerging across North America, from Provo to Philadelphia, sustaining a period of tech-driven, economic growth unseen since the dot-com boom of the late 1990s.”
McCarthy said New York City had seen significant growth in the TAMI sector (Technology, Advertising, Media and Information). “If Silicon Valley is the brains of the tech sector, then New York City is the creative center. 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 that Midtown South of Market, and that market in particular has seen significant growth in terms of both property values and rents.”
The tech industry has changed the way its companies and also those traditionally non-tech approach commercial real estate said Robert Sammons, Cushman & Wakefield’s Senior Director, Northern California Research.
“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,” Sammons said.
As well, he added that tech companies are driving demand as they continue to hunt for space and grabbing it in certain hot markets when they can find it. “With unemployment at 4.0% 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 – and that means the best salaries, the best incentives, the best space and the best location. That last point has generally meant an urban or even suburban location that is mixed-use, walkable, bikeable and near mass transit,” he said.
“The trend for the start-ups and tech companies to occupy large spaces in metropolitan areas is occurring all over North America and especially in the cities our report identifies as ‘Tech is a critical component of the local economy and CRE market,’” Sammons said.
Combining employment, occupations, venture capital investment, and demographics statistics, this year’s list from Tech Cities 2.0 is separated into three major categories:
- Tech is a critical component of the local economy and CRE market:
- Salt Lake City
- San Diego
- San Francisco
- Silicon Valley
- Washington, DC Metro
- Tech is a key driver of the local economy and CRE market:
- Dallas/Fort Worth
- Minneapolis/St. Paul
- Portland, OR
- Tech is important to the local economy and CRE market, but there are other important sectors as well:
- Greater Los Angeles
- South Florida
- New York City
Key findings from Tech Cities 2.0 include:
- In the first of half of last year, 42% of the square footage in the top 100 leases in North America were signed by tech companies.
- The fastest growing tech employment market since 2010 is Provo, Utah. Though a smaller market than the others on the list, the number of people employed by tech companies increased 64.9%, surpassing the 62.7% increase in San Francisco.
- Average asking rents in cities like Atlanta, Austin, Seattle, and San Francisco have increased more than 50% since 2010.
- Property prices are skyrocketing. Among the Top 25, property prices have increased on average by 59%, with the greatest increases happening in Austin, Silicon Valley, and San Francisco.
- Cities that are targets for venture capital funding are the most important tech cities in North America. Among the Top 25, VC funding grew by an average of $2.0 billion compared to $457 million for the top 101 markets.
- The top four cities for new construction are all cities where tech is a critical factor in the local real estate market, including: Austin, Raleigh/Durham, Seattle, and San Francisco.