Rising Rents Push Techs To Key Markets

CHICAGO—For years technology firms and startups flocked to Northern California, but according to JLL's 2015 US Technology Office Outlook, these companies have started to plant roots in markets across the nation.

And over the past year, 73% of the sector's new office leases were expansions, a significantly higher rate than seen for the general office market. In the second quarter, for example, the Chicago-based JLL found that 40% of all office transactions of more than 20,000 square feet were occupier expansions.

With Northern California holding nine of the top 15 most expensive tech submarkets—led by Downtown Palo Alto at $98.68 per square foot—tech firms increasingly look for space in metros that combine cheap rents and deep talent pools.

"Technology companies and startups need to look at a full range of options as part of their location strategy," said Steffen Kammerer, leader of JLL's technology practice group, in a prepared statement. He was not immediately available, but GlobeSt.com will chat with him later this week. "These companies have to grow. They can still hold a headquarters in the Bay Area, but their offices in secondary or tertiary markets can sometimes support larger staffs or hold just as much strategic importance to their business plans. We're seeing this now more than ever."

And according to JLL's report, the escalating rents along well-known Northern California streets like Sand Hill Rd. and Hamilton Ave.—which at $141.60 and $124.44 per square foot respectively are the most expensive in the US—have pushed the sector far beyond its original home and into markets like Atlanta, Detroit, Orlando and Phoenix. In the past year, 34 tech companies launched new locations across 19 markets and occupied more than 2.1 million square feet of office space.

"Other markets are not competing against Silicon Valley. They're competing to be more like Silicon Valley," said Julia Georgules, director of US office research for JLL. "Technology has become so pervasive in business that it's now becoming a part of every industry and every market. This is generating a new momentum and energy in smaller markets and making them attractive to the type of talent that the technology industry is recruiting. It's not necessary to be located in San Francisco or Silicon Valley anymore as a result, although you'll still find great opportunity in those markets."

But JLL also set out to identify what factors were most helpful to startups and small-to-mid sized technology firms. The company compared the opportunities provided by dozens of locations, the costs of each, and then used the data to create a Locator Matrix that plots out the qualities of each metro area.

"Startups are now competing with other industries for talent and creative space that will push rents at a faster rate over the next 12-18 months," said Amber Schiada, JLL's director of research for Northern California and Rocky Mountain region. "That's why we developed this matrix, so that these companies could quickly and easily examine a full range of factors when selecting their next location."

JLL researchers identified 21 markets for tech companies that combine high startup opportunities with low costs. The markets were: Detroit; Indianapolis; Pittsburgh; Phoenix; Nashville; Orlando; Las Vegas; Dallas; Raleigh-Durham; Charlotte; Atlanta; Miami; Twin Cities; Portland; New Jersey; Denver; Chicago; Austin; Orange County; San Diego and Boulder.