Tech Boom Leads to Submarket Spillover

East Cambridge, MA, where the One Kendall Square complex is located, has a vacancy rate of just 3.3%.

LOS ANGELES—The newest beneficiaries of the tech sector’s continuing expansion may be office landlords outside of the hottest submarkets. The diminishing amount of available space in these top-tier neighborhoods is causing a spillover into neighboring submarkets, CBRE says in its annual Tech-30 report, which measures the sector’s impact on office rents in the 30 leading tech markets across North America.

“Office rents have increased in every primary tech submarket over the past two years, illustrating stiff competition among tenants to locate in talent-rich areas such as Tempe, East Cambridge, Minneapolis’s North Loop and South Orange County, all of which have very low office vacancy,” says Colin Yasukochi, director of research and analysis for CBRE and the report’s author. “If tech companies that are used to paying a premium for space in the top tech submarkets are forced to move to adjacent submarkets to expand, we could start to see significant rent growth in those more traditional markets as well.” These include traditional downtowns with skylines, rather than the brick-and-beam buildings tech companies have favored.