2017 tech-30 - truelogic · 20 market cycle positioning 22 high-tech industry outlook ... meaning...

CBRE RESEARCH

2017 TECH-30Measuring Tech Industry Impact on North American Office Markets

2 | 2017 TECH-30 | CBRE RESEARCH

NEW YORK, NY

16,086 TECH JOBS ADDED

IN THE PAST TWO YEARS

© 2017 CBRE, Inc. | 3

TABLE OF CONTENTS04 EXECUTIVE SUMMARY

06 THE TECH-30 AND THE LABOR MARKET

12 SPREADING MARKET STRENGTH

14 TECH SUBMARKETS OUTPERFORM

16 SUBLEASE SPACE RISING

20 MARKET CYCLE POSITIONING

22 HIGH-TECH INDUSTRY OUTLOOK

26 APPENDIX: TECH-30 MARKET PROFILES

The Tech-30 is a comprehensive analysis of office markets in the U.S. and Canada that are influenced by the high-tech industry. The 30 markets were ranked according to high-tech industry job growth and analyzed to determine how the industry influences office market fundamentals.


HOW IS THE TECH INDUSTRY PERFORMING?The high-tech software/services industry has created 1.1 million jobs since 2010 at an annual growth rate of 6%—a pace four times the national average. While the annual rate of tech industry job growth slowed to 3.4% in 2017, high-tech’s share of major office leasing activity remained steady at 19%.

WHICH ARE THE HIGHEST GROWTH TECH CITIES?For the sixth consecutive year, San Francisco was the top Tech-30 market for high-tech job growth; its high-tech job base grew by 39% over the past two years, while its average asking rent increased by only 7%. Charlotte (32%), Pittsburgh (31%) and Indianapolis (28%)—all low-cost markets—had the next highest job growth rates and rent increases of 17%, 4% and 6%, respectively.

EXECUTIVE SUMMARY

WHICH ARE THE MOMENTUM MARKETS FOR HIGH-TECH INDUSTRY JOBS?Eighteen markets increased their high-tech software/service job growth rates more over the past two years than the prior two-year period. Montréal (18%), Pittsburgh (17%) and Los Angeles (13%) had the largest momentum gains. Another nine markets exceeded the 11.1% U.S. average of high-tech job growth in the past two years, although they did not gain any momentum over the previous two-year period.

WHICH TECH SUBMARKETS OFFER RENT PREMIUMS/DISCOUNTS?Rent premiums outpaced discounts in tech submarkets relative to their overall average, resulting in an aggregate premium of 16%. Submarkets with the highest premiums were in East Cambridge (120%), Santa Monica (92%) and Palo Alto (71%). Discounts were greatest in Hillsboro (-19%), Northeast Charlotte (-18%) and Reston/Herndon (-17%), all emerging tech submarkets.

© 2017 CBRE, Inc. | 5

HOW ARE TECH OFFICE MARKETS PERFORMING?Double-digit rent growth was achieved in 13 markets over the past two years, led by Orange County (23%), Nashville (21%) and Atlanta (18%). Available sublease space is often an indicator of future changes to market conditions. There has been a 1.2 million-sq.-ft. increase in sublease availability in Tech-30 markets this year, on top of an 8 million-sq.-ft. gain in 2016.

WHICH TECH MARKETS OFFER THE BEST VALUE?From an investor’s perspective, markets that are attractive to occupiers and offer the best combination of low office rents and a growing high-tech labor pool, such as Portland, Raleigh-Durham, Dallas/Ft. Worth, Charlotte and Nashville, have the greatest growth potential.

WHERE IS THE TECH INDUSTRY HEADED?CBRE’s forecast for the year ahead is for high-tech job growth above the national average, but slower than in years past. New revenue and job creation will be supported by steady consumer demand, the creation of new market opportunities via disruption and a growing number of industries integrating technology into their business models. Commercial real estate investors should benefit from these trends that have given the tech industry greater stability and a wide economic base compared with previous economic cycles.


THE TECH-30

AND THE LABOR MARKETThe high-tech industry has created 1.1 million jobs since 2010. Labor availability since the 2008 recession, coupled with accommodative capital markets, boosted tech-industry growth substantially. From 2010 through mid-2017, total high-tech industry job growth of 6% annually was four times the national average (Figure 1). In 2017, a tighter labor supply and sustained demand for technical skills slowed high-tech job growth to 3.4% annually—still more than twice the national average. With a more business-friendly political environment, the tech industry is on track to add 100,000 jobs this year.

FIGURE 1: U.S. JOB GROWTH FOR HIGH-TECH AND CREATIVE INDUSTRIES Index = 2007

Source: U.S. Bureau of Labor Statistics, July 2017, CBRE Research, Q2 2017.

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High-Tech Software/Services Biotech Design Services Media-Entertainment High-Tech Manufacturers Telecom U.S. Total Non-Farm

© 2017 CBRE, Inc. | 7

Future growth faces a structural barrier: The pool of available talent for jobs that require specific skills, such as software development, is limited. Only 37% of all tech-talent workers are employed in the high-tech software/services industry, according to CBRE’s Scoring Tech Talent report, meaning tech companies must compete with other industries that employ the remaining 63% of tech workers. In addition, the unemployment rate for college-educated workers is 2.7%, causing stiff competition among companies. This should ease slightly in years ahead, evidenced by an 82% increase in college graduates with high-tech degrees over the past five years to 239,000 in 2016.

The high-tech industry has produced steady office leasing activity despite the slowdown in its overall job growth. Since 2013, the industry has accounted for the largest share of major office leasing activity,1 and had a 19% share in the first half of 2017 compared with 18.7% for all of 2016 and 18.1% for 2015. Much of the leasing activity is for future growth, indicating industry confidence. While leasing activity remains steady, office rent growth is slowing in some markets. This trend is most apparent in large markets such as Washington, D.C., New York and the San Francisco Bay Area—all three of which have reduced high-tech hiring because of talent constraints rather than a lack of job openings. Conversely, in some less-established markets like Nashville, Atlanta and Charlotte, rent growth outpaced the national average of 1.6% in the first half of 2017.

Within the Tech-30—the 30 leading technology markets in the U.S. and Canada—high-tech software/services job creation has overwhelmingly outperformed the national average over the past two years (Figure 2). Among these markets, 24 exceeded the 11.1% U.S. high-tech job growth rate in 2015 and 2016. San Francisco was the top high-tech job growth market at 39%. Comparing the current two-year period (2015 and 2016) with the prior two-year period (2013 and 2014), 18 markets posted faster growth, including Montréal, Pittsburgh and Los Angeles. Of the 12 markets with slower growth during these comparison periods, job creation was still strong. Among these were New York, Phoenix, Silicon Valley, Nashville and Austin—all of which had high-tech-sector growth of 15% or more in 2015 and 2016.

The influence of tech job creation on office market rent growth is clear, with 13 of the Tech-30 markets posting rent growth of 10% or more between Q2 2015 and Q2 2017. Orange County was the top market for rent growth, followed by the lower-cost markets of Nashville, Atlanta and Charlotte (Figure 3.1). Furthermore, office rents within the Tech-30 increased in every primary tech submarket between Q2 2015 and Q2 2017. The highest rent growth during this period came from both established and up-and-coming tech submarkets (Figure 3.2), illustrating stiff competition among tenants to locate in areas rich in talent such as Tempe, East Cambridge, North Loop in Minneapolis and South Orange County. The top submarkets for net absorption during this period were Tempe, Lake Union, South Valley, Downtown Nashville and SOMA San Francisco (Figure 3.4).

1. Includes top-25 largest transactions by sq. ft. each quarter for the 54 markets tracked by CBRE Research.

https://researchgateway.cbre.com/Layouts/PublicReportAccess/Default.aspx?PUBID=84380a2c-bb09-4cb5-9c61-c810544803cb


FIGURE 2: HIGH-TECH SOFTWARE/SERVICES JOB AND OFFICE RENT GROWTH, PAST TWO YEARS

High-Tech Software/Services Job Growth Office Market Rent Growth

Source: U.S. Bureau of Labor Statistics, July 2017; Statistics Canada, August 2017; CBRE Research, Q2 2017.

GROWTH RATE

Rank Market

Current Period

Q2‘15 vs. Q2‘17

Previous Period

Q2’14 vs. Q2’16

1 Orange County 23.3% 16.1%

2 Nashville 21.2% 8.9%

3 Atlanta 17.6% 6.1%

4 Charlotte 16.9% 8.0%

5 Silicon Valley 16.8% 25.6%

6 Dallas/Ft. Worth 15.7% 13.4%

7 Portland 14.5% 10.7%

8 San Diego 13.7% 13.4%

9 Phoenix 13.4% 8.3%

10 Seattle 11.4% 8.8%

11 Austin 11.2% 11.4%

12 Los Angeles 11.0% 11.8%

13 Salt Lake City 10.8% 8.8%

14 Raleigh-Durham 8.5% 21.2%

15 Denver 8.3% 11.8%

16 Boston 7.7% 12.9%

17 New York 7.3% 13.4%

18 San Francisco 7.1% 30.7%

19 Minneapolis/St. Paul 7.1% 10.9%

20 Detroit 7.0% 2.2%

21 Indianapolis 6.5% 4.0%

22 Chicago 4.9% 6.2%

23 Philadelphia 4.3% 3.0%

24 Pittsburgh 3.5% 12.4%

25 Montréal 2.3% 2.3%

26 Washington, D.C. Metro 1.1% 3.4%

27 St. Louis 0.9% 3.1%

28 Baltimore -0.5% 1.0%

29 Vancouver -1.1% 18.4%

30 Toronto -5.6% 5.0%

GROWTH RATE NEW HIGH-TECH JOBS

Rank Market

Current Period

2015-2016

Previous Period

2013-2014

New Jobs

2015-2016

As % New Office Jobs 2015-2016

1 San Francisco 39.4% 42.7% 22,367 63.2%

2 Charlotte 31.6% 18.6% 5,630 25.1%

3 Pittsburgh 31.4% 14.1% 4,400 95.1%

4 Indianapolis 27.8% 25.7% 6,182 49.0%

5 Phoenix 25.4% 42.7% 10,731 26.0%

6 Austin 22.9% 33.4% 8,562 38.3%

7 Los Angeles 20.0% 6.7% 12,026 32.1%

8 Seattle 19.4% 18.4% 23,575 93.3%

9 St. Louis 18.8% 9.4% 3,594 69.1%

10 New York 18.7% 22.6% 16,087 31.9%

11 Vancouver 17.9% 8.0% 7,000 25.0%

12 Toronto 17.7% 5.9% 19,000 34.5%

13 Chicago 17.6% 17.1% 9,373 37.0%

14 Nashville 16.8% 23.0% 1,918 7.8%

15 Orange County 16.2% 12.9% 4,870 19.3%

16 Silicon Valley 15.7% 27.6% 18,928 61.4%

17 Montréal 14.0% -4.4% 9,500 175.9%

18 Raleigh-Durham 13.9% 14.3% 4,292 26.7%

19 Salt Lake City 13.7% 16.2% 5,471 22.5%

20 Detroit 12.8% 9.1% 6,094 20.3%

21 Dallas/Ft. Worth 12.5% 10.8% 10,446 22.5%

22 Atlanta 12.0% 7.8% 8,060 21.2%

23 Denver 11.5% 10.4% 6,347 26.4%

24 Boston 11.2% 11.6% 11,426 32.9%

25 Portland 10.3% 17.0% 2,295 16.8%

26 Minneapolis/St. Paul 7.0% 7.8% 2,888 22.0%

27 Washington, D.C. Metro 6.1% -2.4% 10,077 40.0%

28 Philadelphia 5.6% 2.5% 2,123 12.0%

29 Baltimore 5.3% 4.5% 1,662 12.0%

30 San Diego 4.4% 7.8% 1,227 21.1%

© 2017 CBRE, Inc. | 9

CHARLOTTE, NC

17% OFFICE RENT GROWTH



FIGURE 3.1: RENT GROWTH OVERALL MARKETQ2 2015 vs. Q2 2017

Orange County (OC)Nashville (NASH)

Atlanta (ATL)Charlotte (CLT)

Silicon Valley (SV)Dallas/Ft. Worth (DFW)

Portland (POR)San Diego (SD)Phoenix (PHX)

Seattle (SEA)Austin (AUS)

Los Angeles (LA)Salt Lake City (SLC)

Raleigh-Durham (R-D)Denver (DEN)Boston (BOS)

New York (NY)San Francisco (SF)

Minneapolis/St. Paul (MSP)Detroit (DET)

Indianapolis (IND)Chicago (CHI)

Philadelphia (PHIL)Pittsburgh (PIT)Montréal (MON)

Washington, D.C. Metro (DC)St. Louis (STL)

Baltimore (BALT)Vancouver (VAN)

Toronto (TOR)-10% -5% 5% 15% 25%0% 10% 20%

Source: CBRE Research, Q2 2017.

FIGURE 3.2: RENT GROWTH TOP TECH SUBMARKETQ2 2015 vs. Q2 2017

Tempe (PHX)East Cambridge (BOS)

North Loop (MSP)South Orange County (OC)

RTP/1-40 Corridor (R-D)River North (CHI)

Santa Monica (LA)Far North Dallas (DFW)Oakland/East End (PIT)

Northwest (AUS)University City (PHIL)

Downtown (NASH)Midtown (ATL)

South Valley (SLC)Northeast (CLT)

Palo Alto (SV)Reston/Herndon (DC)

Downtown (IND)Midtown South (NY)

Mt. Pleasant/False Creek (VAN)Toronto Downtown West (TOR)

BWI (BALT)SOMA (SF)

Sorrento Mesa (SD)CBD (STL)

Hillsboro (POR)Ann Arbor (DET)

Lake Union (SEA)Downtown (DEN)Downtown (MON)

0% 5% 15% 25% 30%10% 20%


© 2017 CBRE, Inc. | 11

FIGURE 3.3: NET ABSORPTION GROWTH OVERALL MARKETQ3 2015 vs. Q2 2017

Austin (AUS)Phoenix (PHX)

Nashville (NASH)Raleigh-Durham (R-D)

Salt Lake City (SLC)Seattle (SEA)

Charlotte (CLT)Vancouver (VAN)

Silicon Valley (SV)Toronto (TOR)Detroit (DET)

Dallas/Ft. Worth (DFW)Indianapolis (IND)

Portland (POR)San Diego (SD)

Philadelphia (PHIL)Denver (DEN)

Montréal (MON)Los Angeles (LA)

San Francisco (SF)Atlanta (ATL)

Pittsburgh (PIT)Baltimore (BALT)

Chicago (CHI)St. Louis (STL)

Minneapolis/St. Paul (MSP)Orange County (OC)

Washington, D.C. Metro (DC)Boston (BOS)

New York (NY)-2% 0% 4% 8%2% 6%


FIGURE 3.4: NET ABSORPTION GROWTH TOP TECH SUBMARKETQ3 2015 vs. Q2 2017

Tempe (PHX)Lake Union (SEA)South Valley (SLC)Downtown (NASH)

SOMA (SF)RTP/1-40 Corridor (R-D)

Palo Alto (SV)Far North Dallas (DFW)Oakland/East End (PIT)

Northwest (AUS)Midtown (ATL)

East Cambridge (BOS)University City (PHIL)

Toronto Downtown West (TOR)Northeast (CLT)

Downtown (IND)Hillsboro (POR)

CBD (STL)South Orange County (OC)

Santa Monica (LA)Downtown (DEN)

Mt. Pleasant/False Creek (VAN)River North (CHI)Ann Arbor (DET)

Downtown (MON)Reston/Herndon (DC)

North Loop (MSP)BWI (BALT)

Midtown South (NY)Sorrento Mesa (SD)

-5% 5%0% 15% 25% 35%30%10% 20%



SPREADING MARKET STRENGTHThe Tech-30 Power Diagram (Figure 4) illustrates the strength of each market’s high-tech software/services job creation rate and office market performance between Q2 2015 and Q2 2017, and provides insight into where potential value and growth will likely occur. Generally, above-average high-tech software/services job growth coincides with above-average office market performance. Nashville led in office market strength, but a lower concentration of tech within office-using jobs kept it in the Emerging Market quadrant. San Francisco led in high-tech job creation, but flat office performance pushed it into the High-Potential quadrant, with another increase in rents possible. Seven markets maintained their position in the Growth Leaders quadrant and were joined by Indianapolis. Many lower-cost markets have seen office market fundamentals strengthen because of tech industry labor diversification strategies that have boosted job creation.

Source: CBRE Research, Q2 2017 and Bureau of Labor Statistics, July 2017.Tech Cities Market Power Diagram measures the relative strength of the Tech Cities office markets on a scale of 0 to 100. High-tech software/services job strength includes high-tech software/services job growth over the past two years and their current concentration within office-using job categories. Office market strength includes rent and net absorption growth over the past two years. The quadrant lines represent the 30-market aggregate average for each strength measure.

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Philadelphia

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San Diego Orange County

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HIGH-POTENTIAL

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FIGURE 4: TECH-30 MARKET POWER DIAGRAM

Montréal

© 2017 CBRE, Inc. | 13

AUSTIN, TX

3.6 MSF OF NET ABSORPTION



CAMBRIDGE, MA

120% OFFICE RENT PREMIUM

ABOVE OVERALL BOSTON MARKET

© 2017 CBRE, Inc. | 15

TECH SUBMARKETS

OUTPERFORMLeading tech submarkets often outperform the broader office markets in which they are located because tenants are willing to pay a premium in areas preferred by tech talent. Many of these submarkets have limited office availability and are located near leading universities. The top tech submarkets with the lowest vacancy rates are East Cambridge (3.3%), Palo Alto (3.7%) and Mount Pleasant/False Creek in Vancouver (4.0%). As the tech industry becomes more prominent in these submarkets, the office rent premium paid by tenants has widened (Figure 5). Average leasing rates for top tech submarkets have increased faster than their broader markets since 2011 and currently have a 16.2% premium. Some markets are significantly higher, such as East Cambridge (120%), Palo Alto (71%) and Santa Monica (92%). Several emerging tech markets have rent discounts, such as Hillsboro, Oregon (-19%), Northeast Charlotte (-18%) and Reston/Herndon (-17%). Low vacancy in top tech submarkets creates challenges for companies to expand. This often forces larger users into adjacent submarkets or downtown into traditional office buildings rather than the preferred brick-and-beam buildings in top tech submarkets.

FIGURE 5: TECH-30 MARKETS AND SUBMARKETS AGGREGATE ANNUAL AVERAGE ASKING RENT


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SUBLEASE SPACE RISING,

PARTICULARLY IN TECH-CONCENTRATED MARKETS

inventory in U.S. and Canadian tech office markets is rising, and these markets are offering surplus office space at a faster pace than tenant demand can absorb it. Figure 6 shows aggregate available sublease space in the Tech-30 office markets. A large increase in sublease availability occurred in 2016 and has since increased by 16% to 65.3 million sq. ft. It is too early to characterize the overall increase in available space as a troubling trend; however, new construction deliveries often lead to a rise in sublease space, which could cause concern.

Tech firms account for 14% of current available sublease space across the Tech-30. This portion is lower than in 2016, and is heavily concentrated in larger tech markets. Potential risk in these markets stems from tech firms that lease more space than they currently need; two-thirds of available sublease space in the Tech-30 is attributable to downsizing or space banking for future growth. To measure potential risk that sublease availability poses to office market fundamentals, sublease concentration and saturation were analyzed.

Office markets across the country have seen a surge in leasing activity from the tech industry over the past five years. Tech’s share of major leasing activity is 19% this year—nearly double that of 2011. This outsized share is causing concern that the tech industry may be over-leasing office space, just like the energy industry did recently. Available sublease

FIGURE 6: TECH-30 AGGREGATE AVAILABLE SUBLEASE OFFICE SPACE


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MSF

© 2017 CBRE, Inc. | 17

LOS ANGELES, CA

20% TECH JOB GROWTH



SILICON VALLEY, CA

185,633 JOBS – LARGEST

MARKET FOR TECH INDUSTRY

© 2017 CBRE, Inc. | 19

The Sublease Risk Radar (Figure 7) plots sublease space growth and tech concentration against the saturation of sublease availability. The overall risk across tech markets is medium-low with a 1.8% overall sublease availability rate across the Tech-30 total inventory. Markets with a high concentration of tech, increasing availability of sublease space and high sublease availability rates—those in the upper right corner of the radar—have a medium level of risk that sublease space will weaken market fundamentals.

Silicon Valley is at the highest position on the risk spectrum, with a 3.7% sublease availability rate, and has the highest concentration of sublease availability from tech companies, placing it at the top of the medium-risk category. Other markets in the high-growth/concentration and high-availability quadrant have experienced above-average growth in the amount of sublease availability during the past year. Consequently, they should be closely monitored because sublease space oversupply has preceded a market downturn in the past.

Source: CBRE Research, Q2 2017.Sublease Risk Radar measures the relative risk of tech sublease dispositions across top markets with available data. Sublease Growth/Tech Concentration is a function of sublease inventory growth over the past year and the concentration of disposed tech subleases in early-2017. Sublease Availability is the portion of total market inventory available for sublease. The quadrant lines represent the aggregate average for each measure.

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HIGH GROWTH/CONCENTRATIONHIGH AVAILABILITY

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Austin

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FIGURE 7: SUBLEASE RISK RADAR - TECH OFFICE MARKETSOverall Risk Level: Medium-Low (Q2 2017)

New York

Seattle

Portland

Phoenix San Francisco

Silicon Valley

Los AngelesVancouver

San Diego

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Indianapolis

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Raleigh-DurhamMinneapolis

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MARKET CYCLE

POSITIONING Current real estate cycle positions influence investment and occupancy decisions. Markets generally move across the four cyclical phases at varying degrees, with some remaining in one cyclical phase for an extended period of time. In aggregate, the Tech-30 moved forward within the expansion phase of the office market cycle over the past 12 months (Figure 8). By market, positioning varied—14 U.S. markets were in the maturation/stable phase of the cycle and 14 were in the expansion phase. Washington, D.C. and Baltimore, while moving forward in the cycle during the past 12 months, lag the other office markets and are in the stabilization phase of the cycle.

© 2017 CBRE, Inc. | 21


Austin Dallas/Ft. Worth

Los AngelesNew York

Orange CountyPhiladelphia

Montréal Toronto

Washington, D.C. Metro Q2 2009

Tech-30 Aggregate

Q2 2010

Q2 2011

Tech-30 Market (Q2 2017)

Q2 2012

Q2 2013

Q2 2014

Q2 2015

Q2 2016

Baltimore

DetroitIndianapolisMinneapolis

Raleigh-DurhamSeattle

St. LouisVancouver

AtlantaCharlotteNashvillePhoenix

San Diego

ContractionRents declining, vacancy increasing, and excess new supply additions.

StabilizationRents still declining or stable, vacancy increasing or decreasing slowly and limited or no new supply additions

ExpansionRents rising at faster pace, vacancy declining,

and new supply additions underway or on the horizon

Maturation/StableRents increasing at slower pace or stable, vacancy stable or increasing slowly, and

increased new supply additions

FIGURE 8: TECH-30 OFFICE MARKET CYCLE

Q2 2017

BostonChicagoDenverPittsburghPortlandSalt Lake CitySan FranciscoSilicon Valley


HIGH-TECH INDUSTRY

OUTLOOK There is far-reaching demand for advanced-technology products and services, which are becoming integral to business productivity. The Index of Consumer Technology Expectations (Figure 9), which measures anticipated spending on technology, illustrates the sustained consumer demand for new and innovative technology, with a current reading above the long-term average. This demand for technology should support continued growth among high-tech companies and high-tech office market clusters.

Tech startups, and increasingly larger private tech companies, often rely on venture capital to scale their businesses before becoming self-sufficient and, ultimately, public. The availability and flow of capital into these firms is a key component fueling employment growth for the tech industry. While venture capital is still ample and available, it has become more focused on larger deals to the most promising companies,

FIGURE 9: U.S. INDEX OF CONSUMER TECHNOLOGY EXPECTATIONS (FOR SPENDING)

Source: Consumer Electronics Association, July 2017.

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© 2017 CBRE, Inc. | 23

according to PricewaterhouseCoopers. Funding for the internet, software and mobile sectors represented 62% of all venture-capital investment over the past five years (Figure 10). Although funding in these sectors remains high, it may not result in the same level of office expansions and hiring sprees that initially boosted tech office markets across the country because many of the recipient companies are more established firms. Investors’ willingness to fund technology companies at rising valuations will be critical for continued growth in high-tech hiring and office demand in primary tech markets.

FIGURE 10: U.S. VENTURE CAPITAL FUNDING FOR INTERNET, SOFTWARE AND MEDIA SECTORS VS. SAN FRANCISCO OFFICE AVERAGE ASKING RENT

Source: PwC/CBInsights MoneyTree and CBRE Research, Q2 2017.

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Internet, Software & Media VC Funding (L) San Francisco Annual Avg. Rent (R) 2017 Projection

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Public market indices such as the Shiller S&P 500 Cyclically Adjusted Price-to-Earning (CAPE) ratio also reflect rising valuations (Figure 11). The CAPE ratio is a measurement of the broader equity market and is an important metric for gauging the overall health of the economy and the financing environment. Historically, an above-average ratio has preceded significant financial market corrections. The current CAPE ratio exceeds the long-term average and has surpassed the level preceding the 2007 financial market crisis; however, it is about 70% of the dot-com peak level. In addition, the Nasdaq is more than 25% above the


dot-com peak with gains driven by a small number of large tech firms. Strong earnings by major tech companies are driving increased valuations. These firms are also the dominant consumers of office space, which suggests the office market is on stronger footing than in previous cycles.

Overall, national indicators show economic fundamentals remain steady. Our outlook is for continued growth well into 2019. High-tech industry expansion in the past six years has increased concern over growth sustainability, especially given the shortage in the tech-talent labor supply and the potential for financial market volatility. We appear to be in the midst of a technology super cycle, with new revenue and job creation supported by steady consumer demand. The creation of new market opportunities via

FIGURE 11: SHILLER S&P 500 CYCLICALLY ADJUST PE RATIO (CAPE RATIO)

Source: Shiller PE Ratio, September 2017.

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disruption and a growing number of industries integrating technology into their business models support an optimistic outlook for continued growth ahead. Potential tax reform would highly benefit the tech industry if corporate tax rates were lowered and a special rate was established for overseas cash repatriation that could enhance investment and M&A activity further supporting growth.

A downturn will eventually occur, and real estate investors should manage their risk and exposure to the most volatile sectors of the tech industry. Accordingly, Tech-30 office markets should expand further in the near term, albeit at a slower pace. Realistic growth expectations, valuations and viable exit strategies by tech firms will protect commercial real estate investors from some potential losses that were unforeseen during the last tech cycle.

Black Tuesday 1929P/E 33

Black Monday 1987P/E 18

Dot Com Bubble 2000P/E 44

Sept. 2017P/E 30

Financial Crisis 2007P/E 28

© 2017 CBRE, Inc. | 25

SEATTLE, WA

69% OF OFFICE JOBS ADDED

IN THE PAST TWO YEARS WERE

BY THE TECH INDUSTRY


APPENDIX:

TECH-30 MARKET PROFILES

HOT TOPICS

CHARTSTECH EMPLOYMENT

MAJOR OFFICE LEASE TRANSACTIONSQUICK STATS

MARKET RANKINGS

© 2017 CBRE, Inc. | 27

EMPLOYMENT CATEGORIES

Data sources used in this report include industry employment data from the U.S. Bureau of Labor Statistics, Statistics Canada, the PriceWaterhouseCoopers/National Venture Capital Association Moneytree Report, the Shiller S&P 500 Cyclically Adjusted PE Ratio (CAPE Ratio), Consumer Electronics Association, and CBRE Research.

High-Tech Services includes computer systems design and related services, software publishing, data processing, hosting and related services, electronic shopping and electronic auctions, and internet publishing and broadcasting and web search portals.

Design Services includes architectural and engineering services, and specialized design services.

Bio-Tech includes scientific research and development services, medical equipment and supplies, pharmaceuticals and medicines, and medical and diagnostic laboratories.

Media-Entertainment includes motion picture and video production, and advertising and related services.

Telecom includes telecommunications.

High-Tech Manufacturing includes computer and electronic products, electrical equipment, and other electrical equipment and components.

Office-Using Jobs includes professional and business services, financial activities and information.


High-Tech Software/Service Jobs (R)Office-Using Jobs (L) (Excluding High-Tech)


• Eight of the10 largest leases in 2017 were by tech tenants, and large requirements from tech companies make up a significant amount of current demand with multiple active requirements of more than 100,000 sq. ft.

• San Francisco continues to attract established companies with its central location among Bay Area markets and high-quality tech talent.

• Large office construction projects will add 6.6 million sq. ft. to the market and are largely pre-leased by tech companies.

OFFICE MARKET STATS, Q2 2017

Average Asking Rent $72.90Direct FS/YRVacancy Rate 6.7%New SupplyUnder Construction 6.6 MSFSublease Available 1.5 MSFTop Tech Submarket SOMARents/Vacancy $73.21 / 5.7%

HIGH-TECH INDUSTRY STATS, 2016

Employment 79,129High-Tech Software/ServicesEmployment Clustering 28.2%% of Office-Using JobsEducational Attainment 51.6%Residents w/ BA or higherLabor Cost (MSA) $126,726 Software Engineer

Source: CBRE Research, Q2 2017 and U.S. Bureau of Labor Statistics, July 2017.SIGNIFICANT OFFICE LEASE DEALS, 2017

Airbnb 650 Townsend St 287,000 SFConfidential 525 Market St 180,000 SFConfidential 2 Rincon Ctr 166,460 SFSource: CBRE Research, Q2 2017.

HOT TOPICS

QUICK STATS HIGH-TECH SOFTWARE/SERVICES VS. OFFICE-USING JOBS (THOUSANDS)

Source: CBRE Research, Q2 2017. Net absorption growth as a % of market’s inventory

HIGH-TECH SOFTWARE/SERVICES JOB AND OFFICE RENT GROWTH

High-Tech Job Growth Office Market Rent Growth

Rank MarketCurrent Period

2015-2016Prior Period

2013-2014Current Period

Q2‘15-Q2‘17Prior Period

Q2‘13-Q2‘151 San Francisco 39.4% 42.7% 7.1% 30.7%2 Charlotte 31.6% 18.6% 16.9% 8.0%3 Pittsburgh 31.4% 14.1% 3.5% 12.4%4 Indianapolis 27.8% 25.7% 6.5% 4.0%5 Phoenix 25.4% 42.7% 13.4% 8.3%6 Austin 22.9% 33.4% 11.2% 11.4%7 Los Angeles 20.0% 6.7% 11.0% 11.8%8 Seattle 19.4% 18.4% 11.4% 8.8%9 St. Louis 18.8% 9.4% 0.9% 3.1%

10 New York 18.7% 22.6% 7.3% 13.4%11 Vancouver 17.9% 8.0% -1.1% 18.4%12 Toronto 17.7% 5.9% -5.6% 5.0%13 Chicago 17.6% 17.1% 4.9% 6.2%14 Nashville 16.8% 23.0% 21.2% 8.9%15 Orange County 16.2% 12.9% 23.3% 16.1%16 Silicon Valley 15.7% 27.6% 16.8% 25.6%17 Montréal 14.0% -4.4% 2.3% 2.3%18 Raleigh-Durham 13.9% 14.3% 8.5% 21.2%19 Salt Lake City 13.7% 16.2% 10.8% 8.8%20 Detroit 12.8% 9.1% 7.0% 2.2%21 Dallas/Ft. Worth 12.5% 10.8% 15.7% 13.4%22 Atlanta 12.0% 7.8% 17.6% 6.1%23 Denver 11.5% 10.4% 8.3% 11.8%24 Boston 11.2% 11.6% 7.7% 12.9%25 Portland 10.3% 17.0% 14.5% 10.7%26 Minneapolis/St. Paul 7.0% 7.8% 7.1% 10.9%27 Washington, D.C. Metro 6.1% -2.4% 1.1% 3.4%28 Philadelphia 5.6% 2.5% 4.3% 3.0%29 Baltimore 5.3% 4.5% -0.5% 1.0%30 San Diego 4.4% 7.8% 13.7% 13.4%

Ranked by high-tech job growth rate.Source: U.S. Bureau of Labor Statistics, Statisitcs Canada, CBRE Research, Q2 2017.

SAN FRANCISCO (#1)

NET ABSORPTION GROWTHOVERALL MARKET, PAST TWO YEARS (Q3 2015 - Q2 2017)















New York (NY)-2% 4%2%0% 6% 8%

RENT GROWTHTOP TECH SUBMARKET, PAST TWO YEARS (Q2 2015 VS. Q2 2017)



RTP/I-40 Corridor (R-D)River North (CHI)








BWI (BALT)SOMA (SF)



Lake Union (SEA)Downtown (DEN)

Downtown (MON)15% 20% 25% 30%10%5%0%

250 100

20075

25150

50

100 02001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015

© 2017 CBRE, Inc. | 29


• Charlotte has a young, diverse workforce that is consistently replenished by several highly respected colleges and universities.

• Entrepreneurial incubators supporting tech startups are creating a successful environment, particularly in the CBD.

• As the third-largest banking center in the nation, Charlotte is quickly emerging as a leading hub for fintech innovation. The city is teaming up with major financial players to create the Charlotte Fintech Initiative, attracting new, more innovative financial services startups.


Average Asking Rent $25.40Direct FS/YRVacancy Rate 8.3%New SupplyUnder Construction 0.9 MSFSublease Available 0.3 MSFTop Tech Submarket NortheastRents/Vacancy $20.93 / 6.7%




AvidXchange 935 Hamilton St 200,000 SFIntegration Point Providence Park 48,000 SFFidelity Information Services 2359 Perimeter Pointe Pkwy 23,196 SFSource: CBRE Research, Q2 2017.

HOT TOPICS












CHARLOTTE (#2)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

250 30

200 20

150 10

100 02001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015



• Since 2014, the average Class A asking rate in the city’s dominant tech submarket, Oakland/East End, has surged 36% to $36.66 per sq. ft.

• Self-driving cars have logged more than 1 million autonomous miles on the streets of Pittsburgh within the past year.

• The average rental rate of the top tech leases since 2010 is 24% higher than Pittsburgh’s average Class A asking rate.


Average Asking Rent $21.87Direct FS/YRVacancy Rate 11.8%New SupplyUnder Construction 0.4 MSFSublease Available 0.2 MSFTop Tech Submarket Oakland/East EndRents/Vacancy $21.20 / 7.3%




Argo AI 4845 Railroad St 65,000 SFSchell Games, LLC 220 West Station Sq Dr 16,486 SFConfidential 4420 Bayard St 6,573 SFSource: CBRE Research, Q2 2017.

HOT TOPICS












PITTSBURGH (#3)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

240 20

22010

200

180 02001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015

© 2017 CBRE, Inc. | 31


• Nearly one-third of job commitments in Indiana through mid-July 2017 were from tech and tech-enabled companies—the most commitments of any industry.

• Indianapolis-based Infosys announced plans for a $8.7 million technology and innovation hub in the city, with plans to add 2,000 employees by 2020.

• As tech firms lease more space, office building owners in Downtown Indianapolis are investing in updates to common areas and tenant lounges.


Average Asking Rent $18.96Direct FS/YRVacancy Rate 15.8%New SupplyUnder Construction 0.3 MSFSublease Available 0.2 MSFTop Tech Submarket DowntownRents/Vacancy $20.37 / 15.5%




Infosys 1 American Sq 35,378 SFRCR Technology Corporation 251 N Illinois St 19,139 SFInteractions LLC 6612 E 75th St 17,767 SFSource: CBRE Research, Q2 2017.

HOT TOPICS












INDIANAPOLIS (#4)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

200 30

180 20

160 10

140 02001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015



• Co-working companies in Phoenix are catering to small tech users and providing flexible leasing options, and are concentrated in urban environments.

• Tech companies remain focused in the urban areas of Phoenix and exceedingly require open floorplans with high parking ratios and proximity to public transportation.

• Landlords are incorporating new buildouts and amenities that cater to tech and non-tech companies alike, as traditional office users adopt tech-oriented space to retain talent.


Average Asking Rent $25.01Direct FS/YRVacancy Rate 17.6%New SupplyUnder Construction 1.5 MSFSublease Available 2 MSFTop Tech Submarket TempeRents/Vacancy $28.35 / 6.5%




Confidential 201 E Washington St 51,410 SFWeb.com 1355 N Scottsdale Rd 36,503 SFScientific Technologies Corporation 411 S 1st St 26,174 SFSource: CBRE Research, Q2 2017.

HOT TOPICS












PHOENIX (#5)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

600 55

45500

35400

300 25

200 152001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015

© 2017 CBRE, Inc. | 33


• Tech tenants currently occupy 34% of the market’s total office inventory, and three of the five largest tech companies have signed large-block Class A expansion leases this year.

• Highlighting its status as an innovation hub, Austin accounted for 31% of all patents granted to Texas inventors in 2016, up from 29% in 2015.

• With 27 colleges and universities in the area, tech employers have access to a strong talent pool.


Average Asking Rent $34.83Direct FS/YRVacancy Rate 9.3%New SupplyUnder Construction 1.9 MSFSublease Available 1.5 MSFTop Tech Submarket NorthwestRents/Vacancy $34.43 / 10.1%




HomeAway 3110 Esparanza Xing 315,862 SF3M Company 13011 McCallen Pass 272,000 SFConfidential 500 W 2nd St 65,206 SFSource: CBRE Research, Q2 2017.

HOT TOPICS












AUSTIN (#6)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

200 55

150

100 35

45

50 25

0 152001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015



• Millions of sq. ft. of positive net absorption have come from a few major tech and internet media companies—a trend expected to continue.

• LA is benefiting from billions of dollars in spending on original media content for tech companies, which is driving growth for traditional media firms.

• Smaller tech industries are growing in importance to LA’s tech economy, and tech firms are choosing LA for its educated millennial workforce and the Southern California lifestyle.


Average Asking Rent $37.08Direct FS/YRVacancy Rate 14.0%New SupplyUnder Construction 2.1 MSFSublease Available 1.3 MSFTop Tech Submarket Santa MonicaRents/Vacancy $71.28 / 7.7%




Riot Games 12100 W Olympic Blvd 80,000 SFBlackline Systems 21300 Victory Blvd 66,447 SFEdmunds.com 2401 Colorado Ave 62,558 SFSource: CBRE Research, Q2 2017.

HOT TOPICS












LOS ANGELES (#7)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

1100 85

1000 65

900 45

800 252001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015

© 2017 CBRE, Inc. | 35


• Sublease space from both tech and non-tech companies is being absorbed by many fast-growing tech firms.

• Employment gains in the second half of 2017 may be subdued due to low unemployment. The city anticipates additional population growth eventually.

• Tech firms from outside the Puget Sound region continue to locate and expand in Seattle, the most recent being a large expansion by Coupang.


Average Asking Rent $32.45Direct FS/YRVacancy Rate 11.3%New SupplyUnder Construction 7 MSFSublease Available 2.1 MSFTop Tech Submarket Lake UnionRents/Vacancy $38.93 / 7.3%




F5 Networks 801 5th Ave 515,518 SFConfidential 1812 Boren Ave 290,674 SFConfidential 1101 Westlake Ave N 151,675 SFSource: CBRE Research, Q2 2017.

HOT TOPICS












SEATTLE (#8)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

280 175

260 125

240 75

220 252001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015



• Tech-industry demand is driving new construction in St. Louis. The Cortex Innovation District announced plans for $350 million in new development over the next five years, and Innovation Plaza is planned for Downtown.

• Infrastructure improvements, including the addition of a MetroLink light-rail station, continue in and around the Cortex District.

• Construction on World Wide Technologies’ new St. Louis headquarters is near completion and will add up to 1,000 jobs.


Average Asking Rent $18.75Direct FS/YRVacancy Rate 14.1%New SupplyUnder Construction 0.7 MSFSublease Available 0.4 MSFTop Tech Submarket CBDRents/Vacancy $16.52 / 25.3%




Trizetto 3300 S Rider Trail 87,002 SFCIC 4220 Duncan Ave 41,000 SFConfidential 4220 Duncan Ave 29,000 SFSource: CBRE Research, Q2 2017.

HOT TOPICS












ST. LOUIS (#9)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

260 30

240 20

220 10

200 02001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015

© 2017 CBRE, Inc. | 37


• Average tech firm taking rent is down 4% since year-end 2016, while concessions are up to an of average 9.5 months of free rent.

• Demand for the very limited supply of built space remains high, with the need for maximum flexibility to either expand or contract.

• Larger tenants are considering new construction, given the efficiencies it offers over historically favored pre-war assets.

• Landlords are renovating buildings to accommodate tenant demands for building-wide amenities, such as rooftops, bike storage, lounges and cafes.


Average Asking Rent $76.36Direct FS/YRVacancy Rate 8.1%New SupplyUnder Construction 11.1 MSFSublease Available 9.5 MSFTop Tech Submarket Midtown SouthRents/Vacancy $76.36 / 6.6%




Spotify 4 World Trade Ctr 481,263 SFIPSoft 17 State St 139,642 SFSS&C Technologies 4 Times Sq 135,572 SFSource: CBRE Research, Q2 2017.

HOT TOPICS












NEW YORK (#10)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

1000 125

950

900 75

100

850 50

800 252001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015



• The tech industry is driving job creation and represents 55% of tenant demand for space. There are 18 tech firms in the market, primarily focused on downtown.

• Mount Pleasant and False Creek are the most in-demand submarkets outside of the downtown core.

• Bullish expectations for growth of new-economy jobs in Vancouver stem from the success of local start-ups and continued hiring by major international companies.


Average Asking Rent $39.61 CADDirect FS/YRVacancy Rate 9.9%New SupplyUnder Construction 1.5 MSFSublease Available 0.8 MSFTop Tech Submarket Mt. Pleasant/False CreekRents/Vacancy $39.83 CAD / 4.0%


Employment 46,100High-Tech Software/ServicesEmployment Clustering 14.8%% of Office-Using JobsEducational Attainment 31.5%Residents w/ BA or higherLabor Cost (MSA) $79,518 CADSoftware Engineer

Source: CBRE Research, Q2 2017 and Statistics Canada August 2017.SIGNIFICANT OFFICE LEASE DEALS, 2017

Confidential 401 West Georgia St 150,000 SFVisier Solutions 858 Beatty St 40,000 SFScanline VFX 580 Granville St 35,880 SFSource: CBRE Research, Q2 2017.

HOT TOPICS












VANCOUVER (#11)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

325 50

250 40

175 30

100 202001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015

© 2017 CBRE, Inc. | 39


• Toronto’s relative proximity to U.S. markets, coupled with its large labor pool, a common language, affordable rent and supportive governmental subsidies has positioned it as an ideal tech hub.

• Downtown West, Toronto’s primary tech hub, has seen its vacancy rate in brick-and-beam buildings drop to 1.0% as of Q2 2017.

• As tech users mature and have larger office space requirements, they are faced with limited options in the tight Downtown West market and increasingly are forced to relocate to traditional CBD Class A office towers in the downtown core.


Average Asking Rent $33.48 CADDirect FS/YRVacancy Rate 8.0%New SupplyUnder Construction 4.5 MSFSublease Available 2 MSFTop Tech Submarket Toronto Downtown WestRents/Vacancy $40.52 CAD / 4.4%


Employment 126,300High-Tech Software/ServicesEmployment Clustering 14.3%% of Office-Using JobsEducational Attainment 32.4%Residents w/ BA or higherLabor Cost (MSA) $85,987 CAD Software Engineer


Rangle.io 18 York St 53,000 SFShopify 602-620 King St W 46,000 SFIndeed Canada 2 Bloor St W 40,000 SFSource: CBRE Research, Q2 2017.

HOT TOPICS












TORONTO (#12)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

800

700

150

600 100

125

500 75

400 502001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015



• There has been an increase in late-stage funding for Chicago-based tech startups over the past two years.

• Established tech companies see Chicago as a strong market for sales personnel and well-educated engineers.

• Chicago will continue to attract tech companies because of its relatively inexpensive real estate costs and strong tech labor pool.


Average Asking Rent $29.80Direct FS/YRVacancy Rate 16.4%New SupplyUnder Construction 1.8 MSFSublease Available 2.7 MSFTop Tech Submarket River NorthRents/Vacancy $40.81 / 9.2%




Outcome Health 515 N State St 393,763 SFHERE Holding Corporation 100 N Riverside Plz 277,573 SFExpedia 500 W Madison St 96,980 SFSource: CBRE Research, Q2 2017.

HOT TOPICS












CHICAGO (#13)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

850

800

70

75055

70040

650 252001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015

© 2017 CBRE, Inc. | 41


• Nashville has a young, diverse workforce that is consistently fueled by several highly respected and high-profile area colleges and universities.

• Tech industry preference for new space has propelled new construction and renovations to include creative office space with open floor plans.

• Leasing activity remains concentrated in Nashville’s urban office market because the tech industry attracts highly skilled workers who prefer denser, central-city living amenities.


Average Asking Rent $24.79Direct FS/YRVacancy Rate 8.8%New SupplyUnder Construction 2.6 MSFSublease Available 0.5 MSFTop Tech Submarket DowntownRents/Vacancy $25.73 / 9.8%




Houzz 315 Deaderick St 37,421 SFPopculture.com 6 Cadillac Drive 3,946 SF


HOT TOPICS












NASHVILLE (#14)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

220

170

15

12010

705

20 02001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015



• Tech-related industries currently occupy more than 42% of creative office space in Orange County, and this demand is rising.

• Businesses locating in Orange County benefit from lower business and labor costs, while workers enjoy a variety of local amenities, diverse culture and relaxed lifestyle.

• Tech employment grew by 40.7% from 2005 to 2016, making it the top-growing industry in Orange County with approximately 300,000 sq. ft. of active requirements.


Average Asking Rent $33.00Direct FS/YRVacancy Rate 9.1%New SupplyUnder Construction 2.6 MSFSublease Available 2 MSFTop Tech Submarket South Orange CountyRents/Vacancy $34.20 / 6.3%




Cylance 400 Spectrum Ctr 133,324 SFToshiba America 5231-5241 California 96,352 SFToshiba America 25530 Commercentre Dr 70,558 SFSource: CBRE Research, Q2 2017.

HOT TOPICS












ORANGE COUNTY (#15)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

500 40

400 30

300 20

200 102001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015

© 2017 CBRE, Inc. | 43


• Technology tenants increasingly seek Class A, open-concept, plug-and-play office space, and this trend is contributing to a boom in office construction.

• High-tech employment is expected to grow at a slower pace, as tech companies face an increasingly competitive hiring environment.

• Mergers and acquisitions of established technology companies have caused consolidations, relocations and downsizings by large occupiers, increasing the amount of sublease availability.


Average Asking Rent $58.53Direct FS/YRVacancy Rate 9.0%New SupplyUnder Construction 8.5 MSFSublease Available 4 MSFTop Tech Submarket Palo AltoRents/Vacancy $100.20 / 3.7%




Confidential 905 11th Ave 350,663 SFConfidential 2100 University Ave E 214,052 SFConfidential 2795 Augustine Dr 163,000 SFSource: CBRE Research, Q2 2017.

HOT TOPICS












SILICON VALLEY (#16)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

300 210

200

250 160

110

150 602001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015



• Internationally known as a hub for artificial intelligence, Montréal has received large investments in universities from top global tech companies.

• The inaugural Artificial Intelligence Forum in Montréal highlighted the expertise housed in the region, along with its strong tech-oriented university programs.

• Montréal has relatively low labor costs when compared to other Canadian markets like Vancouver and Toronto, and has a pipeline of engineering student talent.


Average Asking Rent $31.95 CADDirect FS/YRVacancy Rate 12.4%New SupplyUnder Construction 1.1 MSFSublease Available 0.7 MSFTop Tech Submarket DowntownRents/Vacancy $37.82 CAD / 9.4%


Employment 77,400High-Tech Software/ServicesEmployment Clustering 17.3%% of Office-Using JobsEducational Attainment 25.8%Residents w/ BA or higherLabor Cost (MSA) $72,925 CAD Software Engineer


Ubisoft Divertissements 5445 De Gaspé Ave 86,715 SFStudios Framestore 5455 De Gaspé Ave 75,000 SFElement AI 6666 St-Urbain 75,000 SFSource: CBRE Research, Q2 2017.

HOT TOPICS












MONTRÉAL (#17)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

425 85

350 65

275 45

200 252001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015

© 2017 CBRE, Inc. | 45


• Raleigh-Durham continues to attract technology companies, with Citrix recently announcing it will add 400 employees to its downtown Raleigh workforce and Infosys announcing it will locate in the Triangle and add 2,000 jobs over the next 10 years.

• Tech companies have historically occupied space in and around the Research Triangle Park to be centrally located for workers from Raleigh, Durham and Chapel Hill.

• Three world-class universities, which continue to grow their entrepreneurship programs, and a lower cost of doing business compared to other tech hubs are the main drivers of the local tech market.


Average Asking Rent $24.83Direct FS/YRVacancy Rate 13.6%New SupplyUnder Construction 1.6 MSFSublease Available 0.9 MSFTop Tech Submarket RTP/I-40 CorridorRents/Vacancy $23.27 / 25.5%




Relias Learning 3024 Carrington Mill Blvd 130,640 SFAlign Technology 3030 Slater Rd 80,000 SFCopernicus 5000 Centregreen Way 44,000 SFSource: CBRE Research, Q2 2017.

HOT TOPICS












RALEIGH-DURHAM (#18)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

200 40

150 30

100 20

50 102001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015



• Salt Lake City is the headquarters of four “unicorns” (private companies valued at $1 billion-plus)—tied for third most in the nation, despite having less than half the population of the next smallest top-five market.

• Nearly 70% of last year’s tech leases were in the Silicon Slopes area, encompassing Utah’s two most populous counties (Salt Lake & Utah) and drawing talent from four major universities within 50 miles.

• Office supply in Silicon Slopes has grown by 54% (or 4.2 MSF) in five years, with at least another 13% growth (1.5 MSF) expected in 2018. Adobe recently announced a 1,260-employee, 270,000-sq.-ft. expansion.


Average Asking Rent $23.93Direct FS/YRVacancy Rate 13.3%New SupplyUnder Construction 1 MSFSublease Available 0.6 MSFTop Tech Submarket South ValleyRents/Vacancy $24.72 / 9.2%




Alliance Data 12921 S Vista Station Blvd 134,000 SFPodium 3400 N Frontage Rd 100,000 SFSorenson Media 2000 W Ashton Blvd 61,329 SFSource: CBRE Research, Q2 2017.

HOT TOPICS












SALT LAKE CITY (#19)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

250 55

200 40

150 25

100 102001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015

© 2017 CBRE, Inc. | 47


• With the changing landscape of the auto industry and rise of autonomous vehicles, many of the local tech companies have an auto-centric focus.

• Downtown and Midtown Detroit have attracted many college graduates and people in their late-20s to find tech jobs in the area, reversing the flight of such workers just 10 years ago.

• With metro Detroit ranked the fifth most affordable office market in the U.S., growing tech companies located here don’t pay as much as those in well-established tech markets.


Average Asking Rent $18.54Direct FS/YRVacancy Rate 16.4%New SupplyUnder Construction 0.1 MSFSublease Available 0.6 MSFTop Tech Submarket Ann ArborRents/Vacancy $23.81 / 10.3%




Tyco Simplex Grinnell 24747 Halstead Rd 28,689 SFElektrobit Automotive Americas 34705 W 12 Mile Rd 23,062 SFTyco Electronics 900 Wilshire Dr 15,984 SFSource: CBRE Research, Q2 2017.

HOT TOPICS












DETROIT (#20)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

550 60

450 50

350 40

250 302001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015



• DFW is the largest tech market in Texas, providing talent across all industries and sectors.

• Technology companies are attracted to DFW because of its large labor pool, while workers are attracted to the market because of its diverse job opportunities.

• Collaborative amenities are a common requirement of tech companies in their search for space and recruitment of top talent.


Average Asking Rent $24.01Direct FS/YRVacancy Rate 19.4%New SupplyUnder Construction 5.4 MSFSublease Available 5.8 MSFTop Tech Submarket Far North DallasRents/Vacancy $25.54 / 16.1%




NTT Data 7950 Legacy Dr 126,715 SFYardi Systems 8616 Freeport Pkwy 54,646 SFCognizant 5001 Statesman Dr 45,000 SFSource: CBRE Research, Q2 2017.

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DALLAS/FT. WORTH (#21)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

1000 100

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0 02001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015

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• Atlanta stands out as a strong tech-job creator and talent attractor, with access to top talent from local universities such as Georgia Tech, the University of Georgia, Georgia State University and Emory University.

• Corporate engagement with educational institutions is fostering lasting partnerships between talent producers and businesses looking for innovation beyond the startup stage.

• High educational attainment, access to talent and a relatively low cost of living and doing business are all advantages of the Atlanta market.


Average Asking Rent $25.03Direct FS/YRVacancy Rate 17.6%New SupplyUnder Construction 1.8 MSFSublease Available 2.6 MSFTop Tech Submarket MidtownRents/Vacancy $29.50 / 14.8%




Q Squared Solutions 1600 Terrell Mill 138,981 SFAthenaHealth 675 Ponce De Leon Ave NE 40,000 SFZelis Network Solutions 2 Concourse Pkwy NE 38,515 SFSource: CBRE Research, Q2 2017.

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ATLANTA (#22)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

600 80

500 70

400 60

300 502001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015



• The tech industry had positive net growth in the past year, as 37 companies expanded their space and 15 companies opened an office in or moved their headquarters to metro Denver.

• Denver’s ability to attract tech companies from other markets due to its relatively low cost of living and doing business made technology the city’s largest office-leasing industry last year, totaling 1.1 million sq. ft.

• Boulder and the Northwest are the established submarkets for tech companies, but now more are choosing traditional office buildings in Downtown Denver.


Average Asking Rent $26.15Direct FS/YRVacancy Rate 14.2%New SupplyUnder Construction 4.5 MSFSublease Available 3 MSFTop Tech Submarket DowntownRents/Vacancy $33.78 / 16.1%




Vertafore 999 18th St 108,801 SFMarketo 707 17th St 51,377 SFIbotta 1801 California 38,356 SFSource: CBRE Research, Q2 2017.

HOT TOPICS












DENVER (#23)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

400 70

350 55

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250 252001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015

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• Small tech startups are having difficulty gauging growth potential and have been seeking shorter-term leases.

• Tech firms prefer turn-key buildouts and creative, open- design space, which is more costly than traditional build-outs.

• Downtown Boston and East Cambridge are the top destinations for startups, while more established firms expand in the suburbs.


Average Asking Rent $36.13Direct FS/YRVacancy Rate 14.2%New SupplyUnder Construction 4.2 MSFSublease Available 4.9 MSFTop Tech Submarket East CambridgeRents/Vacancy $79.64 / 3.3%




InterSytems 1 Memorial Drive, Cambridge 250,000 SFConfidential 253 Summer Street, Boston 144,000 SFWayfair Copley Square, Boston 110,000 SFSource: CBRE Research, Q2 2017.

HOT TOPICS












BOSTON (#24)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

560 130

520 100

480 70

440 402001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015



• Oregon tech is diversifying to include more software in the traditionally hardware-dominant economy, and the region’s ability to attract and retain young, skilled workers is a strong advantage for companies.

• Hardware companies tend to favor the traditional Hillsboro submarket, while software companies continue to expand in downtown Portland.

• Tech remains the cornerstone of Portland’s expansion, fueled by a dynamic startup culture and growth in existing information technology, but the rising cost of living has narrowed the affordability advantage that Portland had in years past.


Average Asking Rent $26.75Direct FS/YRVacancy Rate 11.3%New SupplyUnder Construction 1 MSFSublease Available 0.7 MSFTop Tech Submarket HillsboroRents/Vacancy $21.79 / 9.4%




Autodesk 17 SE 3rd Avenue 108,750 SFeBay 1400 SW 5th Avenue 56,645 SFCloudability 334 NW 11th Avenue 22,591 SFSource: CBRE Research, Q2 2017.

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PORTLAND (#25)
















New York (NY)-2% 4%2%0% 6% 8%













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Downtown (MON)15% 20% 25% 30%10%5%0%

225

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• The most sought-after location for tech companies is the North Loop, but limited supply and rising rental rates have pushed demand to downtown Minneapolis and across the river into the Northeast submarket.

• New construction in the North Loop is attributable to both the demand for more space and the preferences of tech talent: full amenity packages, abundant natural light and open layouts.

• St. Paul is attracting and retaining tech employees with the converted Ecolab building that will be home to several growing tech firms, incubator space and a floor dedicated to co-working.


Average Asking Rent $26.62Direct FS/YRVacancy Rate 16.9%New SupplyUnder Construction 0 MSFSublease Available 0.6 MSFTop Tech Submarket North LoopRents/Vacancy $28.67 / 16.0%




Arcserve 8855 Flying Cloud Dr 33,496 SFMobile Soft 120 S 6th St 31,590 SFEaton Cooper Power Systems 3033 Campus Dr 28,404 SFSource: CBRE Research, Q2 2017.

HOT TOPICS












MINNEAPOLIS/ST. PAUL (#26)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

440

420

50

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360 202001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015



• The technology sector accounted for 466,000 sq. ft. of positive net absorption through mid-2017. Occupancy gains primarily were in Northern Virginia, while D.C. and Suburban Maryland remained relatively flat.

• Tech tenants new to the market are actively seeking a total of 345,000 sq. ft. in metro D.C. this year.

• The technology sector has contributed 1.77 million sq. ft. of leasing velocity year-to-date. Deals in the pipeline may increase leasing by 150% year-over-year.


Average Asking Rent $37.09Direct FS/YRVacancy Rate 16.6%New SupplyUnder Construction 8.3 MSFSublease Available 0.8 MSFTop Tech Submarket Reston/HerndonRents/Vacancy $30.88 / 15.7%




Confidential 13200 Woodland Park Rd 400,677 SFHughes Network Systems Lake Forest Boulevard 111,167 SFGDIT 11111 Sunset Hills Rd 110,000 SFSource: CBRE Research, Q2 2017.

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WASHINGTON, D.C. METRO (#27)
















New York (NY)-2% 4%2%0% 6% 8%













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Downtown (MON)15% 20% 25% 30%10%5%0%

700 220

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550 1002001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015

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• Philadelphia is home to nearly 500 tech companies, and University City is the most sought-after submarket with a strong cluster of companies located there.

• Tech users often look for open and creative space; more than half of tech tenants in Greater Philadelphia occupy Class A office space.

• Tech companies are moving away from the bench-seating model toward the Office 360 model to retain talent and offer their workforces more collaborative and creative environments.


Average Asking Rent $26.87Direct FS/YRVacancy Rate 14.1%New SupplyUnder Construction 2.4 MSFSublease Available 1.6 MSFTop Tech Submarket University CityRents/Vacancy $41.27 / 8.3%




Card Connect 1000 Continental Dr 80,000 SFSofterware 600 Office Ctr Dr 40,000 SFTarget X 1000 E Hector St 8,000 SFSource: CBRE Research, Q2 2017.

HOT TOPICS












PHILADELPHIA (#28)
















New York (NY)-2% 4%2%0% 6% 8%













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Downtown (MON)15% 20% 25% 30%10%5%0%

440 45

42035

400

380 252001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015



• Greater Baltimore has more than 75,000 cybersecurity-related employees, one of the largest such concentrations in the country.

• Small to medium-sized technology firms continue to expand in Baltimore; however, demand for space has been affected by delayed contracts from the federal government.

• Private product-based cyber-tech companies are expected to increase their footprints in the BWI and Columbia submarkets due to a robust talent base.


Average Asking Rent $22.61Direct FS/YRVacancy Rate 13.8%New SupplyUnder Construction 1.1 MSFSublease Available 0.9 MSFTop Tech Submarket BWIRents/Vacancy $26.53 / 16.3%




PayPal 9690 Deereco Rd 59,824 SFSkyline Network Technology 6956 Aviation Blvd 28,753 SFTesys Technologies 8840 Stanford Blvd 27,500 SFSource: CBRE Research, Q2 2017.

HOT TOPICS












BALTIMORE (#29)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

275 40

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• San Diego tech and software startups have received more than $1 billion in venture capital funding in the past two years, making this a top secondary market for VC investment.

• San Diego’s diverse tech subsectors like med-tech, defense and fin-tech often have varying needs, which influence where they locate in San Diego.

• Sorrento Mesa and Downtown remain the key submarkets for tech office, but Rancho Bernardo, UTC and Carlsbad have been driving much of the tech office leasing activity this year.


Average Asking Rent $34.08Direct FS/YRVacancy Rate 11.0%New SupplyUnder Construction 0.3 MSFSublease Available 1.3 MSFTop Tech Submarket Sorrento MesaRents/Vacancy $35.31 / 17.6%




FTD/Proflowers 4830 Eastgate Mall 93,475 SFForcepoint 10240 Sorrento Valley Rd 69,117 SFSERVICENow 4820 Eastgate Mall 63,532 SFSource: CBRE Research, Q2 2017.

HOT TOPICS












SAN DIEGO (#30)
















New York (NY)-2% 4%2%0% 6% 8%













BWI (BALT)SOMA (SF)




Downtown (MON)15% 20% 25% 30%10%5%0%

320 30

30025

280

26020

240 152001 2005 20092003 2007 2011 20142002 2006 2010 20132004 2008 2012 20162015

CONTACTSTo learn more about CBRE Research, or to access additional research reports, please visit www.cbre.com/research-and-reports. Additional U.S. Research from CBRE can be found here.

Scott MarshallExecutive Managing Director Advisory & Transaction Services, Investor Leasing +1 630 573 [email protected] Scott on Twitter: @S_R_Marshall

Whitley CollinsGlobal PresidentOccupier Advisory & Transaction Services+1 310 363 [email protected]

Todd HusakManaging DirectorTechnology and Media Practice+1 650 494 [email protected]

Colin YasukochiDirector, Research and Analysis+1 415 772 [email protected]

Lexi RussellSenior Research Analyst+1 415 772 [email protected]

FOR MORE INFORMATION PLEASE CONTACT:

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FOR MORE INFORMATION REGARDING CBRE RESEARCH, PLEASE CONTACT:

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Spencer G. LevyAmericas Head of Research and Senior Economic Advisor+1 617 912 [email protected] Follow Spencer on Twitter: @SpencerGLevy

Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

WANT TO KNOW MORE ABOUT SCORING TECH TALENT?CBRE Research recently released a comprehensive report on tech talent across the U.S. The report, “Scoring Tech Talent: Influencing Innovation, Economic and Real Estate Growth in 50 U.S. and Canadian Markets”, identifies the top markets for tech talent using a proprietary scoring system, explains what tech talent markets look like, and identifies the top tech talent momentum and innovation markets and corresponding operating costs. Download the Scoring Tech Talent: Influencing Innovation, Economic and Real Estate Growth in 50 U.S. and Canadian Markets.

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