From its origins in Silicon Valley, the tech industry is now starting to boom right across the United States. And as we enter a new era of innovation, the industry’s rising prominence is creating a raft of opportunities for commercial real estate investors who can identify the current and future needs.
The tech industry continues to be the largest consumer of office space across the United States and, according to Steffen Kammerer, Senior Vice President and leader of JLL’s Technology group, it’s still in a growth phase. In fact, leasing volumes from growing tech companies in 2017 are likely to surpass 2015 and 2016 levels, according to JLL’s recent Tech Office Trends report.
Kammerer is quick to dismiss concerns of a bubble, pointing out that there is an entire shift in our economy toward innovation, technology, mobility and agility.
“We have seen the tech industry permeate beyond the major tech hubs of Silicon Valley and San Francisco and into other markets across the country. While West Coast tech hubs such as Silicon Valley, Seattle-Bellevue and San Francisco remain the most saturated with tech leasing activity among primary CRE markets, we expect more activity in the secondary tech markets over coming years, such as in Madison, Oakland-East Bay and Raleigh-Durham.”
This is good news for commercial property investors keen on the sector but looking outside the Bay area.
Although with such an evolving industry, comes a specific and unique set of real estate requirements.
According to Kammerer, investors seeking opportunities within the technology sector should consider the nature of the premises, as tech businesses move towards a ‘less is more’ physical layout with mixed-use leasing opportunities.
“In the changing era of business, tech companies are prioritizing open and shared spaces over personal office spaces.”
“We will also see a change in the way people work, requiring more flexible and collaborative spaces. Integrated cafes, movable seating areas, and indoor/outdoor use will continue to become attractive features to tenants. Therefore, investors who seek out properties with the potential for such an offering should be well-placed for receiving profitable returns in this sector.”
While the tech boom provides plenty of optimism for investors, Kammerer notes that the staggering recent growth in leasing activity will likely near its limits in the next 24 to 36 months, given current and future employment conditions. Unemployment is at historic lows, so it’s more difficult to continue growing at same rate as in the past.
“Because the tech industry has been one of the few industries responsible for organic occupancy growth across markets, additional rent growth will be a rather challenging achievement. But over the long term, investors should have no concerns. With tech permeating virtually every local economy, the outlook for many metro areas is a promising one.”
Click here to read more about office investment.