US high-tech industry-powered office markets thrive, others slow to revive
We are regularly asked by CBRE colleagues and investors from around the world, particularly in Asia about the re-emergence of the US economy.
Obviously the difficult times since the global financial crisis have been well documented and the US economy is certainly one of the key topics for debate during the current ‘race for the Whitehouse’.
However, if you scratch a little below the surface, it certainly hasn’t all been doom and gloom. Opportunities were apparent for those who know where to look. As an example, since 2007 the US high-tech economy has grown nearly six times faster than the national economy fuelled by demand for mobile, search, social and cloud computing software and service technologies.
High-tech services jobs (non-manufacturing) grew 9.9%, compared to a total US job growth of just 1.7% between mid-2009 and mid-2012. Except for biotech, other industries we have analyzed remain well below 2007 peak employment levels and are generating limited amounts of new demand for office space.
So what does mean for real estate? The concentration of high-tech job growth within the most influential high-tech oriented cities (called the “Tech-Twenty”), is driving both economic and office market performance.
The increased demand from new job creation has caused office rents to rise sharply in San Francisco (44%), New York City (17%) and Silicon Valley (26%) over the past two years.
Los Angeles, Philadelphia and Orange County have some pockets of high-tech growth, but not enough to keep their office markets from struggling with high vacancies and almost no rent growth.
We also believe Salt Lake City, Denver and Portland are cities to watch with strong high-tech job growth, although these have to yet to feel changes to office market conditions.
The recent deceleration of US and global economic activity may spell near-term trouble for the overall US office market, but not necessarily for high-tech.
While economic worry has surfaced within high-tech, both consumers and venture capitalists have responded by focusing spending and funding in higher proportions on key high-tech areas that should fuel further growth and benefit the same cities with leading office market performance. The main threat is another “financial crisis”-type event.
Overall, the high-tech industry growth cycle is still in its early stages and we feel it has further growth and business cycles ahead.
CBRE’s Tech-Twenty report is available on the CBRE Research Center website.