CBRE RESEARCH

CBRE RESEARCH

TECH-THIRTY2016 Measuring the Tech Industry’s Impact on North American Office Markets

TABLE of Contents EXECUTIVE Summary

04

TECH-THIRTY Employment Markets

06

SPREADING Market Strength

12

TECH SUBMARKETS Outperform

14

SUBLEASE SPACE RISING, Particularly In Tech-Concentrated Markets

16

MARKET CYCLE Positioning

22

HIGH-TECH Industry Outlook

24

APPENDIX: TECH-THIRTY Market Profiles

30

The Tech-Thirty 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.

EXECUTIVE Summary

4 | 2016 TECH-THIRTY | CBRE RESEARCH

HOW WELL IS THE TECH INDUSTRY PERFORMING? Job growth has shifted from breakneck to brisk. Over the past five years, the software/services industry created 780,000 new jobs at a 7.3% growth rate and accounted for nearly 20% of major leasing activity. In 2016, job creation slowed to a 4% annual growth rate and similarly impacted certain office markets. WHAT IS THE TOP-RANKED TECH CITY? San Francisco topped the Tech-Thirty office markets list for the fifth consecutive year; its high-tech job base has grown 47% over the past two years, while average asking rents have increased by 23%. Phoenix was second with 45% high-tech job growth, followed by Austin with 33% growth. WHAT ARE THE MOMENTUM MARKETS FOR THE HIGH-TECH INDUSTRY? Thirteen markets both outperformed the U.S. average high-tech job growth rate and increased their growth momentum between 2013 and 2015 compared with the previous two-year period, led by Toronto (20%), Charlotte (15%) and Dallas/Ft. Worth (9%). WHAT TECH SUBMARKETS OFFER PREMIUMS/DISCOUNTS? Premiums for tech submarkets outpaced discounts relative to their overall market average and resulted in an aggregate submarket rent premium of 14%. Submarkets with the highest premiums were in East Cambridge (102%), Palo Alto (82%) and Santa Monica (82%). Discounts were greatest in a number of emerging tech

submarkets, including Reston/Herndon (-18%), Northeast Charlotte (-16%) and Downtown St. Louis (-15%). HOW ARE TECH OFFICE MARKETS PERFORMING? Nineteen markets posted double-digit rent growth over the past two years, led by Silicon Valley (28%), Raleigh-Durham (25%) and Orange County (24%). Market condition changes are often reflected in an increase in available sublease space, which climbed 4 million sq. ft. or 7.3% in the Tech-Thirty markets during 2016. Nine markets grew at three times this rate. WHERE IS THE BEST VALUE AMONG TECH MARKETS? From an investor’s perspective, markets that have the greatest growth potential share these traits: They are attractive to occupiers and offer the best combination of low office rents and a growing high-tech labor pool. Examples include Phoenix, Raleigh-Durham, Dallas/Ft. Worth, Charlotte and Nashville. WHERE IS THE TECH INDUSTRY HEADED? Continued job growth at a slower pace in the year ahead is expected. Steady consumer demand and a rising number of high-tech integrated businesses should support this growth. Commercial real estate investors must be mindful and have realistic expectations about this historically volatile industry underpinning the health of many Tech-Thirty markets.

© 2016 CBRE, Inc. | 5

TECH-THIRTY Employment Markets High-tech industry job creation grew at a pace four times the national average between 2011 and 2015 (Figure 1). During that time, more than 780,000 software/services jobs were added for an annual average of 156,800. This breakneck pace of 7.3% annual growth slowed during the first half of 2016, and by year-end the estimated 120,000 job additions will represent 4% growth—brisk, but only 2.8 times the national average. Tighter labor and volatile capital market conditions are the two main reasons for slower tech industry job growth in the first half of 2016. Since 2009, the tech industry grew rapidly with help from a vast post-recession labor pool and accommodative capital markets. As of early 2016, the U.S. economy is nearing full employment, which is severely constraining the availability of unemployed skilled labor, and capital markets have become more cautious even though liquidity remains high. FIGURE 1

U.S. Job Growth for High-Tech and Creative Industries Index value > 100 indicates job growth above 2007 peak 145

High-Tech Software/Services

135 125 115

Media Entertainment Biotech

105 U.S. Total Non-Farm

95

Design Services Office Jobs (excl. high-tech)

85

High-Tech Manufacturers Telecom

75 2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Source: U.S. Bureau of Labor Statistics, July 2016, CBRE Research, Q2 2016.

The skills of the available labor pool do not appear to align with available jobs, causing a structural barrier to growth. Jobs that require specific skills, such as software development, are in high demand and the pool of available talent is limited. Only 37% of all tech-talent workers are employed in the high-tech software/services industry, according to the Scoring Tech Talent report by CBRE, meaning they must compete with other industries that employ the remaining 63% of tech workers. In addition, the unemployment rate for college educated workers is around 2.5%, causing stiff competition among companies. Demand for talent has not ceased and will be eased slightly by the growing base of new tech graduates produced by universities.


© 2016 CBRE, Inc. | 7

High-tech has accounted for the largest industry share of major office leasing activity1 since 2013, and although tech job creation may be slowing, there still is strong leasing activity by the high-tech industry, which had a 20% share during the first half of 2016 versus 18% for all of 2015. Activity remains steady, but office rent growth is slowing in some markets. This shift is most apparent in large markets such as the Washington, D.C. metro area, New York and the San Francisco Bay Area, all three of which have slowed high-tech hiring. Conversely, in some less established markets like Dallas/Ft. Worth and Atlanta, and tech-specific submarkets like BWI in Baltimore, rent growth outpaced the national average of 3.6% during the first half of 2016. Within the Tech-Thirty—comprised of 30 leading technology markets in the U.S. and Canada—high-tech software/services job creation overwhelmingly outperformed the national average (Figure 2). Among these markets, 18 exceeded the 13.7% U.S. software/services job growth rate between 2013 and 2015. San Francisco was the top growth market and registered a 47% rate of new tech job creation. Comparing the current period (2013-2015) with the prior period (2012-2014), we found 20 markets posted higher growth, including Toronto, Charlotte and Dallas/Ft. Worth. Of the 10 markets with lower growth during these comparison periods, job creation was still strong. Among these were Silicon Valley, Austin, Nashville, Salt Lake City and Portland—all of which experienced software/services sector growth of 16% or higher between 2013 and 2015. The impact of tech job creation on office market rent growth was apparent, with 19 of the Tech-Thirty posting rent growth of 10% or more between Q2 2014 and Q2 2016. The San Francisco Bay Area was once again among the top markets for rent growth, reflecting the region’s strong job creation and low vacancy rates. San Francisco, Silicon Valley and the San Francisco Peninsula were also among the top four most concentrated markets in terms of tech jobs as a share of office jobs, indicating the importance of the high-tech industry as an economic and office-market driver over the past few years. Raleigh-Durham, a low-cost market with a large, skilled workforce, posted the second-highest rent growth. Office rents within the Tech-Thirty increased in all but two of the primary tech submarkets between Q2 2014 and Q2 2016. The highest rent growth this period occurred in both established and up-andcoming tech submarkets (Figure 3.2), illustrating stiff competition among tenants to locate in areas rich in talent such as University City, Oakland/East End Pittsburgh, East Cambridge, Palo Alto and Tempe. The top submarkets for net absorption during this period varied across the country—among them Tempe, University City, Lake Union, South Valley and Northwest Denver. 1

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


FIGURE 2

High-Tech Software/Services Job and Office Rent Growth, Past Two Years High-Tech Software/Services Job Growth Office Market Rent Growth GROWTH RATE

RANK

MARKET

NEW HIGH-TECH JOBS NEW AS % NEW JOBS OFFICE JOBS

GROWTH RATE

CURRENT PERIOD

PRIOR PERIOD

2013-2015

2012-2014

2013-2015

2013-2015

RANK

MARKET

CURRENT PRIOR PERIOD PERIOD Q2‘14 VS. Q2‘16 Q2’13 VS. Q2’15

1

San Francisco

47.0%

42.7%

22,096

62.7%

1

Silicon Valley

28.4%

28.0%

2

Phoenix

44.5%

42.7%

15,190

46.9%

2

Raleigh-Durham

24.6%

21.2%

3

Austin

33.3%

33.4%

10,700

40.8%

3

Orange County

24.3%

16.1%

4

Charlotte

33.2%

18.6%

5,298

22.9%

4

San Francisco

22.7%

30.7%

5

Indianapolis

27.9%

25.7%

5,423

34.2%

5

SF Peninsula

19.8%

22.2%

6

Silicon Valley

26.1%

27.6%

27,976

72.1%

6

Nashville

18.1%

8.9%

7

Toronto

25.9%

5.9%

24,900

36.9%

7

Dallas/Ft. Worth

16.6%

13.4%

8

New York

25.9%

22.6%

19,677

29.7%

8

Austin

15.3%

11.4%

9

Chicago

21.1%

17.1%

10,181

24.8%

9

Charlotte

14.8%

8.0%

10

Dallas/Ft. Worth

19.7%

10.8%

15,265

24.7%

10

Portland

14.2%

10.7%

11

Pittsburgh

18.8%

14.1%

2,503

207.4%

11

San Diego

13.6%

12.7%

12

Seattle

17.6%

18.4%

19,524

88.9%

12

Boston

12.7%

12.9%

13

Detroit

17.1%

9.1%

7,605

29.8%

13

Salt Lake City

12.4%

8.8%

14

Vancouver

16.8%

10.3%

6,800

73.9%

14

Denver

12.0%

11.8%

15

Raleigh-Durham

16.3%

14.3%

4,670

33.4%

15

New York

11.6%

13.4%

16

Nashville

16.2%

23.0%

1,691

7.1%

16

Phoenix

11.6%

8.3%

17

SF Peninsula

15.1%

14.9%

5,469

62.3%

17

Atlanta

11.4%

6.1%

18

Salt Lake City

14.1%

16.2%

5,312

23.7%

18

Los Angeles

10.1%

11.8%

19

Orange County

13.3%

12.9%

3,794

17.3%

19

Minneapolis

10.0%

10.9%

20

Los Angeles

13.0%

6.7%

7,696

135.2%

20

Vancouver

9.0%

18.4%

21

Atlanta

12.6%

7.8%

8,071

18.4%

21

Pittsburgh

7.3%

12.4%

22

Boston

12.2%

8.5%

11,867

43.3%

22

Chicago

5.7%

6.2%

23

Portland

12.1%

17.0%

2,544

16.9%

23

Seattle

5.2%

8.9%

24

Denver

10.1%

10.4%

5,361

20.5%

24

Indianapolis

5.0%

4.0%

25

Minneapolis

8.1%

7.8%

3,192

59.5%

25

Philadelphia

4.4%

3.0%

26

San Diego

8.0%

7.8%

2,121

44.9%

27

Baltimore

4.5%

4.5%

1,398

15.1%

28

Washington, D.C. metro area

3.9%

-2.4%

6,536

29

St. Louis

2.3%

9.4%

30

Philadelphia

2.3%

2.5%

26

Detroit

3.5%

2.2%

27

St. Louis

-0.3%

3.1%

68.7%

28

Baltimore

-0.5%

1.0%

436

4.9%

29

Toronto

-1.2%

5.0%

858

10.6%

30

Washington, D.C. metro area

-3.7%

3.4%

Source: U.S. Bureau of Labor Statistics, July 2016, Statistics Canada, August 2016, CBRE Research, Q2 2016.

© 2016 CBRE, Inc. | 9

FIGURE 3.1

FIGURE 3.2

Q2 2014 VS. Q2 2016

Q2 2014 VS. Q2 2016

Rent Growth Overall Market Silicon Valley (SV) Raleigh-Durham (R-D) Orange County (OC) San Francisco (SF) SF Peninsula (SFP) Nashville (NASH) Dallas/Ft. Worth (DFW) Austin (AUS) Charlotte (CLT) Portland (POR) San Diego (SD) Boston (BOS) Salt Lake City (SLC) Denver (DEN) New York (NY) Phoenix (PHX) Atlanta (ATL) Los Angeles (LA) Minneapolis (MIN) Vancouver (VAN) Pittsburgh (PIT) Chicago (CHI) Seattle (SEA) Indianapolis (IND) Philadelphia (PHL) Detroit (DET) St. Louis (STL) Baltimore (BALT) Toronto (TOR) Washington, D.C. Metro (DC)

-5%

0%

5%

10% 15% 20% 25% 30% 35%

Source: CBRE Research, Q2 2016.


Rent Growth Top Tech Submarket University City (PHL) Oakland/East End (PIT) East Cambridge (BOS) Tempe (PHX) CBD (NASH) Hillsboro (POR) Palo Alto (SV) Redwood City (SFP) RTP/I-40 Corridor (R-D) SOMA (SF) Toronto Downtown West (TOR) South Orange County (OC) Far North Dallas (DFW) Northwest (AUS) North Loop (MIN) Lake Union (SEA) Midtown (ATL) River North (CHI) Santa Monica (LA) Sorrento Mesa (SD) Northeast (CLT) Ann Arbor (DET) Mt. Pleasant/False Creek (VAN) South Valley (SLC) Midtown South (NY) CBD (IND) Reston/Herndon (DC) BWI (BALT) Downtown (STL) Northwest (DEN)

-2%


3%

8% 13% 18% 23% 28% 33% 38%

FIGURE 3.3

FIGURE 3.4

Net Absorption Growth Overall Market

Net Absorption Growth Top Tech Submarket

Q3 2014 - Q2 2016 (% OF BUILDING STOCK) Silicon Valley (SV) Austin (AUS) Phoenix (PHX) Nashville (NASH) Seattle (SEA) Raleigh-Durham (R-D) Salt Lake City (SLC) Charlotte (CLT) Detroit (DET) Dallas/Ft. Worth (DFW) Portland (POR) Vancouver (VAN) San Francisco (SF) Atlanta (ATL) Denver (DEN) Philadelphia (PHL) Los Angeles (LA) Indianapolis (IND) San Diego (SD) SF Peninsula (SFP) Minneapolis (MIN) Orange County (OC) Pittsburgh (PIT) Toronto (TOR) Chicago (CHI) Boston (BOS) Baltimore (BALT) New York (NY) St. Louis (STL) Washington, D.C. Metro (DC)

-1%


1%

3%

5%

7%

9%

Q3 2014 - Q2 2016 (% OF BUILDING STOCK)

11%

Tempe (PHX) University City (PHL) Lake Union (SEA) South Valley (SLC) Northwest (DEN) Far North Dallas (DFW) Midtown (ATL) CBD (NASH) Northwest (AUS) RTP/I-40 Corridor (R-D) Mt. Pleasant/False Creek (VAN) Ann Arbor (DET) North Loop (MIN) Northeast (CLT) Oakland/East End (PIT) East Cambridge (BOS) South Orange County (OC) SOMA (SF) Palo Alto (SV) Toronto Downtown West (TOR) Redwood City (SFP) Midtown South (NY) BWI (BALT) CBD (IND) Downtown (STL) Reston/Herndon (DC) River North (CHI) Hillsboro (POR) Sorrento Mesa (SD) Santa Monica (LA)

-6% -1%

4%

9% 14% 19% 24% 29% 34%


© 2016 CBRE, Inc. | 11


SPREADING Market Strength The Tech-Thirty Power Diagram illustrates the strength of each market’s high-tech software/services job creation rate and office market performance between Q2 2014 and Q2 2016 (Figure 4) and provides insight into where potential value and growth likely will occur. The diagram shows that above-average high-tech software/services job growth generally coincided with above-average office market performance. Silicon Valley, Raleigh-Durham and Austin led in office market strength, all of which boast strong job creation and office market fundamentals. Several lower-cost Sun Belt and Southern markets that benefit from tech industry labor diversification strategies—including Salt Lake City, Dallas/Ft. Worth and Charlotte—appear in the Growth Leaders quadrant as well. These types of markets are also well-represented in the Emerging Market quadrant; Nashville, Phoenix, Orange County, Portland and Denver are counted here, with markedly improved office market conditions in many of these metro areas over the past few years. FIGURE 4

Tech-Thirty Market Power Diagram 100 Emerging

Silicon Valley

Growth Leaders

90 80

Raleigh-Durham Nashville

Office Market Strength

70

Orange County

60

Portland

San Diego

Denver

Los Angeles

50

Minneapolis

40

Philadelphia

30

Pittsburgh

Dallas/Ft. Worth Charlotte

Austin Phoenix SF Peninsula

San Francisco

Salt Lake City Atlanta Seattle Vancouver Detroit Boston Indianapolis New York

Chicago

Toronto

20 Baltimore

St. Louis

10

Washington D.C. Metro High-Potential

Lagging

0 0

10

20

30

40

50

60

70

80

90

100

High-Tech Software/Services Job Strength Source: CBRE Research, Q2 2016 and Bureau of Labor Statistics, July 2016. Tech-Thirty Market Power Diagram measures the relative strength of the Tech-Thirty 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.

© 2016 CBRE, Inc. | 13

TECH SUBMARKETS Outperform Leading 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 expansion opportunities and are located near elite universities. The top tech submarkets with the lowest vacancy rates were East Cambridge (2.5%), Palo Alto (3.5%) and University City (4.5%). As the tech industry becomes more prominent in these submarkets, the rent premium paid for office space by tenants has widened (Figure 5). Since 2011, the difference between the overall market and top tech submarket average asking lease rate has widened to 13.3%. Some markets are significantly higher, such as East Cambridge (102%) Palo Alto (82%) and Santa Monica (82%). Several emerging tech markets offer rent discounts, such as Reston/Herndon (-18%), Northeast Charlotte (-16%), Downtown St. Louis (-15%), Hillsboro, Oregon (-8%) and the RTP/I40 Corridor in Raleigh-Durham (-7%). These submarkets are recording positive rent growth and slowly lowering their discount rates. Lower rental rates should continue to attract tech talent and tenants to these locations. FIGURE 5

Tech-Thirty Markets and Submarkets Aggregate Annual Average Asking Rent PSF/ANNUAL $43 $41 $39

14.4%

$37 $35 $33 $31 $29 $27 $25

Q1

0 0 0 0 1 1 1 1 2 2 2 2 3 3 3 3 4 4 4 4 5 5 5 5 6 6 201 2 201 3 201 4 201 1 201 2 201 3 201 4 201 1 201 2 201 3 201 4 201 1 201 2 201 3 201 4 201 1 201 2 201 3 201 4 201 1 201 2 201 3 201 4 201 1 201 2 201 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Overall Tech-Thirty



Tech-Thirty Submarket

© 2016 CBRE, INc. | 15


SUBLEASE SPACE RISING,

Particularly In TechConcentrated Markets North American office markets experienced a surge in leasing activity from the tech industry. Tech’s share of major leasing activity increased from 11% in 2011 to 20% in 2016, leading to recent concern that this may represent over-leasing of office space similar to what occurred in the energy industry. Available sublease 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-Thirty office markets. Slowing tech job creation has made tech firms more cautious, and one of the first indicators of this change in market conditions is in the sublease market. Available sublease space in these markets has increased by 4.6 million sq. ft. or 7.3% so far in 2016. This rising inventory in the majority of tech markets must be closely monitored. FIGURE 6

Tech-Thirty Aggregate Available Sublease Office Space MSF

54 53 52 51 50 49 48 47 46 45 2012

2013

2014

2015

2016


© 2016 CBRE, Inc. | 17

Tech firms account for approximately 17% of current available sublease space across the TechThirty. It is too early to characterize this increase in available space as a troubling trend; however, tech firms are sensitive to market fluctuations, and the rise in occupied space by these firms leaves certain metro areas more vulnerable in downturns. Potential risk stems from tech firms that lease more space than they need, a trend largely avoided during the early part of the current cycle. Presently, only 7% of available sublease space from tech firms is attributable to space banking for future growth. Should more of this excess space become unnecessary and additional downsizing occur, sublease space could exert enough pressure to weaken market fundamentals. This is particularly true of younger tech firms that have not yet navigated a down market and may not have the financial resources to withstand one. The risk of increased sublease availability to office market fundamentals was analyzed by measuring sublease concentration and saturation. The Sublease Risk Radar (Figure 7) plots sublease space growth and tech concentration against the saturation of sublease availability. Markets with a high concentration of tech, increasing available sublease space and high sublease availability—those in the upper right corner of the radar—have a medium level of risk of sublease space weakening market fundamentals. The overall risk across tech markets is medium-low with a 1.6% aggregate sublease availability rate. Historical analysis suggests a sublease availability rate above 3% is cause for concern representing a medium-high to high risk of weakening market fundamentals.


© 2016 CBRE, Inc. | 19


FIGURE 7

Sublease Risk Radar: Tech-Thirty Office Markets Overall Risk Level: Medium-Low (Q2 2016) High (0 Markets)

100

Medium-High (0 Markets)

Medium (10 Markets)

HIGH CONCENTRATION LOW AVAILABILITY

San Francisco

Silicon Valley

80

Washington, D.C. Metro

Chicago

70

Seattle Vancouver

60 50

Minneapolis Toronto Los Angeles

Portland

Phoenix Dallas/Ft. Worth

Boston San Diego Austin

Pittsburgh

Orange County

Atlanta

Denver SF Peninsula

Salt Lake City

40 Detroit

30

Baltimore

Charlotte

20

St. Louis

10 0

Low (10 Markets)

HIGH CONCENTRATION HIGH AVAILABILITY

90

Sublease Growth/Tech Concentration

Medium-Low (10 Markets)

Nashville Indianapolis

Philadelphia

New York

Raleigh-Durham

LOW CONCENTRATION LOW AVAILABILITY

0.0%

0.5%

1.0%

LOW CONCENTRATION HIGH AVAILABILITY

1.5% 2.0% Sublease Availability

2.5%

3.0%

3.5%

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 during early 2016. Sublease Availability is the portion of total market inventory available for sublease. The quadrant lines represent the aggregate average for each measure. Source: CBRE Research, Q2 2016.

Where sublease availability is high, it has impacted market dynamics and flattened rent growth, which is evident in San Francisco, Boston and Chicago. Furthermore, the San Francisco and Silicon Valley markets are highest on the risk spectrum at a medium level. Eight other markets are also at the medium risk level due to a combination of several factors including consolidation, downsizing and outgrowing leased space by occupiers. Historically, sublease space oversupply has preceded a market downturn, so the rising inventory among tech markets should be closely monitored.

© 2016 CBRE, Inc. | 21

MARKET CYCLE Positioning

In aggregate, the Tech-Thirty moved forward in the office market cycle over the past 12 months and all were in the expansion or maturation phase in Q2 2016 (Figure 8). By market, positioning varied significantly. In the U.S., San Francisco was farthest along in the cycle, followed by Silicon Valley, New York and Portland. Salt Lake City, Boston and Chicago also moved into the maturation phase of the cycle. The two Canadian tech markets are at opposite ends of the spectrum; Toronto is in the maturation stage and Vancouver is in the expansion phase. Meanwhile, the Washington, D.C. metro area, Baltimore and St. Louis lag most other office markets but have moved forward in the cycle over the past 12 months.


FIGURE 8

Tech-Thirty Office Market Cycle Tech-Thirty Market (Q2 2016)

Philadelphia Phoenix

Tech-Thirty Aggregate (Q2 position)

Baltimore St. Louis Vancouver Washington, D.C. Metro

San Francisco Toronto

Q2 2014

Q2 2015

Q2 2016

Q2 2013 Q2 2012

Q2 2009 Q2 2010

Contraction

New York Portland Silicon Valley

Atlanta Indianapolis Los Angeles Minneapolis San Diego Charlotte Detroit

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

Austin Dallas/Ft. Worth Denver Nashville Boston Orange County Chicago Pittsburgh Salt Lake City Raleigh-Durham SF Peninsula Seattle

Q2 2011

Stabilization Rents still declining or stable, vacancy increasing or decreasing slowly, and limited or no new supply additions.

Expansion

Rents rising at faster pace, vacancy declining, and new supply additions underway or on the horizon.

Maturation

Rents increasing at slower pace, vacancy stable, and increased new supply additions.


© 2016 CBRE, Inc. | 23

HIGH-TECH Industry Outlook Advanced technology has integrated itself into business productivity and although the talent pool is limited, strong demand for technology services from both businesses and consumers is expected to support hiring by high-tech firms. The Index of Consumer Technology Expectations (Figure 9), which measures anticipated spending on technology, has leveled off slightly but remains largely above the long-term average of 85—illustrating the sustained consumer demand for new and innovative technology. This demand for technology should support growth among high-tech companies and high-tech office market clusters.


FIGURE 9

U.S. Index of Consumer Technology Expectations (For Spending) 100 95 90 85 80 75 70 65 2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Source: Consumer Electronics Association, July 2016.

© 2016 CBRE, Inc. | 25

Fluctuations in capital markets have prompted tech companies to curb spending. A rocky start to 2016 generated hesitation by investors, which reduced the valuation of many public firms, as well as tech startups, and slowed hiring and ambitious expansions. Many tech startups rely on venture capital funding to scale their businesses before becoming self-sufficient, and cautious capital flows can curtail growth. While venture capital is still ample and available, it has become more focused on large deals to the most promising companies, according to the PricewaterhouseCoopers/National Venture Capital Association’s MoneyTree Report. Funding in the Software and Media/Entertainment sector during the past five years represented 46% of all investment, and is at 55% thus far in 2016—on track for the highest annual total since 2000 (Figure 10). Although funding in this sector remains high, it may not result in the same level of office expansions and hiring sprees that boosted many tech office markets since the recipients tend to be more established firms. Investors’ willingness to fund technology companies at rising valuations will be critical for continued growth in high-tech hiring and office space demand in primary tech markets. A continued high level of VC funding will be critical to sustaining employment and office market growth in tech-driven markets.


FIGURE 10

U.S. Venture Capital Funding For Software & Media/Entertainment Sector vs. San Francisco Office Average Asking Rent Billions

$40

PSF Annual

Software & Media/Entertainment VC Funding (L)

2016 Projection

San Francisco Annual Avg Rent (R)

$80

$35

$70

$30

$60

$25

$50

$20

$40

$15

$30

$10

$20

$5

$10

$0

$0 1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

Source: PwC MoneyTree and CBRE Research, July 2016.

© 2016 CBRE, Inc. | 27


FIGURE 11

Shiller S&P 500 Cyclically Adjust PE Ratio (CAPE RATIO) Shiller PE Ratio

Dot com Bubble 2000 P/E 44

50 45 40

Black Tuesday 1929 P/E 33

35 30

Black Monday 1987 P/E 18

25 20

Financial crisis 2007 P/E 28 July 2016 P/E 26

15 10 5 1884 1887 1891 1894 1898 1901 1905 1909 1912 1916 1919 1923 1927 1930 1934 1937 1941 1944 1948 1952 1955 1959 1962 1966 1970 1973 1977 1980 1984 1987 1991 1995 1998 2002 2005 2009 2013

0

Source: Shiller PE Ratio, July 2016.

Public market indices such as the Shiller S&P 500 Cyclically Adjusted PE (CAPE) ratio also reflect rising valuations (Figure 11). Though the CAPE ratio is a measurement of the broader equity market, rather than just the technology sector, it is an important metric for gauging the overall health of the economy and the financing environment; historically, an above-average ratio has preceded the most significant financial market corrections. The current CAPE ratio exceeds the long-term average; however, it is about 60% of the dot-com peak level and remains slightly below the level corresponding to the 2007 financial market crisis. Also, the CAPE ratio for the technology sector is on par with the ratio for the overall S&P 500, indicating that P/E ratios for large public tech companies are not excessive relative to the broader S&P 500. Strong earnings by many major tech companies continue to hold down P/E ratios within the sector—even amid voracious investor demand.

Overall, economic fundamentals should remain steady, and our outlook is for continued growth over the next year. High-tech industry expansion during the past six years has increased concern over growth sustainability, especially given increased sublease space, the tech-talent labor shortage and the volatility of capital markets. Consumer demand and the growing number of high-tech integrated businesses will continue to support improvement in the high-tech industry. Accordingly, office markets in the Tech-Thirty should expand further in the near term, albeit at a slower pace. Realistic growth expectations, valuations and viable exit strategies will protect commercial real estate investors from some potential losses that were unforeseen during the last tech cycle.

© 2016 CBRE, Inc. | 29

APPENDIX: TECH-THIRTY

Market Profiles QUICK STATS

HOT TOPICS

TECH EMPLOYMENT

MARKET RANKINGS

MAJOR OFFICE LEASE TRANSACTIONS

CHARTS


Employment Categories Bio-Tech includes scientific research and development services, medical equipment and supplies, pharmaceuticals and medicines, and medical and diagnostic laboratories. Design Services includes architectural and engineering services, and specialized design services. High-Tech Manufacturing includes computer and electronic products, electrical equipment, and other electrical equipment and components.

High-Tech Services includes computer systems design and related services, software publishers, data processing, hosting and related services, electronic shopping and electronic auctions, and internet publishing and broadcasting and web search portals. Office-Using Jobs includes professional and business services, financial activities and information. Telecom includes telecommunications.

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

© 2016 CBRE, Inc. | 31

San Francisco

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

QUICK STATS

High-Tech Software/Service Jobs (L)

OFFICE MARKET STATS, Q2 2016 $72.71

Average Asking Rent $/SF FSG

Vacancy Rate New Supply

Under Construction Sublease Available

Top Tech Submarket

Rents/Vacancy

HIGH-TECH INDUSTRY STATS, 2015

250

Employment

69,131

60

200

Employment Clustering

26.3%


6.3%

% of Office-Using Jobs

Educational Attainment

4.5 MSF 2.3 MSF SOMA $72.67 / 8.5%

Residents w/ BA or higher

Labor Cost (MSA)

Software Engineer

51.6% $121,626

215 Fremont St 999 Brannan St 185 Berry St

HOT TOPICS • The high-tech industry drives the San Francisco office market and accounted for 54% of all leasing activity through the first half of the year. • Five leases of 100,000 sq. ft. or more were signed through June 2016, all of which were by high-tech tenants. • Rent growth has tapered thus far in 2016, but the submarkets with the highest asking rents remain in tech-heavy areas like Mission Bay/China Basin, South of Market and the South Financial District.

HIGH-TECH SOFTWARE/SERVICES JOB AND OFFICE RENT GROWTH Market San Francisco Phoenix Austin Charlotte Indianapolis Silicon Valley Toronto New York Chicago Dallas/Ft. Worth Pittsburgh Seattle Detroit Vancouver Raleigh-Durham Nashville San Francisco Peninsula Salt Lake City Orange County Los Angeles Atlanta Boston Portland Denver Minneapolis San Diego Baltimore Washington, D.C. Metro St. Louis Philadelphia

High-Tech Job Growth Office Market Rent Growth Current Period Prior Period Current Period Prior Period 2013-2015 2012-2014 Q2‘14-Q2‘16 Q2‘13-Q2‘15 47.0% 42.7% 22.7% 30.7% 44.5% 41.1% 11.6% 8.3% 33.3% 33.4% 15.3% 11.4% 33.2% 18.6% 14.8% 8.0% 27.9% 25.7% 5.0% 4.0% 26.1% 27.6% 28.4% 28.0% 25.9% 5.9% -1.2% 5.0% 25.9% 22.6% 11.6% 13.4% 21.1% 17.1% 5.7% 6.2% 19.7% 10.8% 16.6% 13.4% 18.8% 14.1% 7.3% 12.4% 17.6% 18.4% 5.2% 8.9% 17.1% 9.1% 3.5% 2.2% 16.8% 10.3% 9.0% 18.4% 16.3% 14.3% 24.6% 21.2% 16.2% 23.0% 18.1% 8.9% 15.1% 14.9% 19.8% 22.4% 14.1% 16.2% 12.4% 8.8% 13.3% 12.9% 24.3% 16.1% 13.0% 6.7% 10.6% 11.8% 12.6% 7.8% 11.4% 6.1% 12.2% 8.5% 12.7% 12.9% 12.1% 17.0% 14.2% 10.7% 10.1% 10.4% 12.0% 11.8% 8.1% 7.8% 10.0% 10.9% 8.0% 7.8% 13.6% 12.7% 4.5% 4.5% -0.5% 1.0% 3.9% -2.4% -3.7% 3.4% 2.3% 9.4% -0.3% 3.1% 2.3% 2.5% 4.4% 3.0%

Ranked by high-tech job growth rate. Source: U.S. Bureau of Labor Statistics, Statisitcs Canada, CBRE Research, Q2 2016. 32 | 2016 TECH-THIRTY | CBRE RESEARCH

100

20

50

0

0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: CBRE Research, Q2 2016 and U.S. Bureau of Labor Statistics, July 2016.

OVERALL MARKET, PAST TWO YEARS (Q3 2014 - Q2 2016) 311,200 SF 150,000 SF 110,700 SF


Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

150

40

NET ABSORPTION GROWTH

SIGNIFICANT OFFICE LEASE DEALS, 2016 Fitbit Airbnb Lyft

Office-Using Jobs (R) (Excluding High-Tech)

80

Silicon Valley (SV) Austin (AUS) Phoenix (PHX) Nashville (NASH) Seattle (SEA) Raleigh-Durham (R-D) Salt Lake City (SLC) Charlotte (CLT) Detroit (DET) Dallas/Ft. Worth (DFW) Portland (POR) Vancouver (VAN) San Francisco (SF) Atlanta (ATL) Denver (DEN) Philadelphia (PHL) Los Angeles (LA) Indianapolis (IND) San Diego (SD) SF Peninsula (SFP) Minneapolis (MIN) Orange County (OC) Pittsburgh (PIT) Toronto (TOR) Chicago (CHI) Boston (BOS) Baltimore (BALT) New York (NY) St. Louis (STL) Washington, D.C. Metro (DC) -1%

1%

3%

5%

7%

9%

11%

Net absorption growth as a % of market’s inventory


RENT GROWTH

TOP TECH SUBMARKET, PAST TWO YEARS (Q2 2014 VS. Q2 2016) University City (PHL) Oakland/East End (PIT) East Cambridge (BOS) Tempe (PHX) CBD (NASH) Hillsboro (POR) Palo Alto (SV) Redwood City (SFP) RTP/I-40 Corridor (R-D) SOMA (SF) Toronto Downtown West (TOR) South Orange County (OC) Far North Dallas (DFW) Northwest (AUS) North Loop (MIN) Lake Union (SEA) Midtown (ATL) River North (CHI) Santa Monica (LA) Sorrento Mesa (SD) Northeast (CLT) Ann Arbor (DET) Mt. Pleasant/False Creek (VAN) South Valley (SLC) Midtown South (NY) CBD (IND) Reston/Herndon (DC) BWI (BALT) Downtown (STL) Northwest (DEN)

-2% Source: CBRE Research, Q2 2016.

3%

8%

13%

18%

23%

28%

33%

38%

Phoenix


QUICK STATS


OFFICE MARKET STATS, Q2 2016


Average Asking Rent

$23.61

Employment


18.1%


9.6%


29.4%

$/SF FSG


Top Tech Submarket

Rents/Vacancy

1.8 MSF 2.1 MSF Tempe $25.74 / 9.1%

High-Tech Software/Services % of Office-Using Jobs


Labor Cost (MSA)

Software Engineer

49,303

$94,262

1721 W Rio Salado Pky 1101 W Washington St 3141 N 3rd Ave

HOT TOPICS • The Phoenix market offers companies a cost-effective workforce and location that has attracted companies from California. • Tech-style office space appeals to both tech and non-tech users. A substantial amount of outdated back-office/call-center space is being converted to creative office projects, and new office developments feature shared working space rather than traditional private offices. • Downtown Tempe and Scottsdale continue to lead in tech growth, while the warehouse district in Downtown Phoenix is being transformed to attract more tech tenants.



Ranked by high-tech job growth rate. Source: U.S. Bureau of Labor Statistics, Statisitcs Canada, CBRE Research, Q2 2016.




Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

500 480 460 440 420 400 380 360


SIGNIFICANT OFFICE LEASE DEALS, 2016 Hotchalk Inc. SAP Synergy Solutions, Inc


60 50 40 30 20 10 0


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

© 2016 CBRE, Inc. | 33

Austin


QUICK STATS




Average Asking Rent

$33.22

Employment

42,861


10.4%


18.5%


42.6%

$/SF FSG


Top Tech Submarket

Rents/Vacancy

1.6 MSF 2.3 MSF Northwest $32.99 / 10.4%



Labor Cost (MSA)

Software Engineer

$97,678

6433 Champion Grandview Way 3900 N Capital of Texas Hwy 9500 Amberglen Blvd

HOT TOPICS • Austin’s tech industry attracts young, highly skilled workers who prefer denser, place-based, central-city living. • The first half of 2016 had 37 office leases of more than 100,000 sq. ft., primarily fueled by corporate relocations and expansions. • Since 2015, 119 relocations or expansions have occurred, 80% of which were by technology firms.




180

35

160 140

25

120

15

100




Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

200


SIGNIFICANT OFFICE LEASE DEALS, 2016 Indeed.com Samsung Oracle


45


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

Charlotte


QUICK STATS






Top Tech Submarket

Rents/Vacancy


8.9% 1.5 MSF 0.3 MSF Northeast $19.62 / 6.2%

Employment


21,274


9.6%


33.5%



Labor Cost (MSA)

Software Engineer

$99,569

200 S Tryon St 8757 Red Oak Blvd 3525 Whitehall Park Dr

HOT TOPICS • Charlotte has a young, diverse workforce that is consistently fed by several highly respected and high-profile area colleges and universities. Since 2010, Charlotte’s tech-talent labor pool has grown by nearly 75%. • Technology companies—from startups to large corporate users—are taking an interest in the Charlotte market, and many are actively searching for available space. • Entrepreneurial incubators with a heavy focus on supporting tech startups and creating a successful environment are emerging, particularly in the CBD.







Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

210 200 190 180 170 160 150 140 130


SIGNIFICANT OFFICE LEASE DEALS, 2016 Townsquare Interactive IMAGINE Software Advantage Solutions


22 20 18 16 14 12 10


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

© 2016 CBRE, Inc. | 35

Indianapolis


QUICK STATS




Average Asking Rent

$18.09

Employment

24,831


15.8%


11.1%


32.9%

$/SF FSG


Top Tech Submarket

Rents/Vacancy

0.2 MSF 0.4 MSF CBD $19.33 / 17.4%



Labor Cost (MSA)

Software Engineer

$81,414

Woodland Pk 111 Monument Cir 11939 N Meridian St

HOT TOPICS • Venture capitalists and tech companies are warming up to the Midwest by opening offices and relocating to the region from other states. • Various tech firms have announced expansion and job growth plans in 2016, continuing net positive growth from the previous year. • The state of Indiana has announced a $1 billion, 10-year entrepreneurship investment initiative focused on technology.




200 180 160 140 120




Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

220


SIGNIFICANT OFFICE LEASE DEALS, 2016 Interactive Intelligence Confidential Blue Horseshoe


30 25 20 15 10 5 0


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

Silicon Valley


QUICK STATS






Top Tech Submarket

Rents/Vacancy


7.9% 9.1 MSF 1.5 MSF Palo Alto $100.33 / 3.5%

Employment


135,114


42.0%


48.7%



Labor Cost (MSA)

Software Engineer

$145,555

1700 Technology Dr 2445 Augustine Dr 4655 Great America Pkwy

HOT TOPICS • Office space near the technology hubs of Palo Alto, Mountain View and Cupertino is far below the average vacancy rate in the Valley. • Tech company preference for new spaces has supported new construction and renovations. In 2016, all new office construction was preleased to tech tenants. Landlords are renovating older buildings, particularly in the North San Jose submarket, where office and renovated R&D product rents are nearly the same.




130 110 90 70 50 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: CBRE Research, Q2 2016 and U.S. Bureau of Labor Statistics, July 2016.



Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

205 195 185 175 165 155 145 135 125


SIGNIFICANT OFFICE LEASE DEALS, 2016 Qualcomm Cambridge Industries Telenav


150


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

© 2016 CBRE, Inc. | 37

Toronto


QUICK STATS


OFFICE MARKET STATS, Q2 2016 $33.96 CAD 9.4%




Top Tech Submarket

Rents/Vacancy


3.9 MSF 2.1 MSF Toronto Downtown West $42.94 CAD / 5.4%

Employment


120,900


14.0%


41.9%



Labor Cost (MSA)

Software Engineer

$118,158 CAD

602-620 King St W 1 Toronto St 111 Richmond St W

HOT TOPICS • Tech companies are preleasing office space with occupancy expected through 2019, more than doubling their footprint in Downtown Toronto. • New construction has strong leasing activity by technology firms, and more office buildings are being positioned as technology incubators, including a former data center and the upcoming Waterfront Innovation Centre. • Brick-and-beam space in Toronto Downtown West is a popular option for small-to-medium-sized technology firms.




2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: CBRE Research, Q2 2016 and Statistics Canada, August 2016



Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

800 750 700 650 600 550 500 450 400


SIGNIFICANT OFFICE LEASE DEALS, 2016 Shopify Inc. CaseWare Points.com


130 120 110 100 90 80 70 60


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

New York


QUICK STATS






Top Tech Submarket Rents/Vacancy

7.4% 11.4 MSF 7.0 MSF Midtown South $72.70 / 5.3%

HIGH-TECH INDUSTRY STATS, 2015 Employment


95,592


9.0%


38.0%



Labor Cost (MSA)

Software Engineer

$112,296

57 11th Ave 1095 Avenue of the Americas 225-233 Park Ave S

HOT TOPICS • In Manhattan, tech leasing velocity—new leases and renewals combined—has totaled at least 2 million sq. ft. in each of the past five years. • Tech tenants have been forced to look outside the highly desirable Midtown South market due to supply constraints. Top-quality space remaining in Midtown South is extremely limited, keeping pricing stable within the submarket. • Submarkets adjacent to Midtown South and within a similar price range, such as Grand Central and Times Square South, are seeing an increase in tech activity.







Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

1000 950 900 850 800 750 700


SIGNIFICANT OFFICE LEASE DEALS, 2016 Confidential Confidential Confidential


104 94 84 74 64 54 44 34


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

© 2016 CBRE, Inc. | 39

Chicago


QUICK STATS




Average Asking Rent

$28.99

Employment


14.1%


6.7%


36.0%

$/SF FSG


Top Tech Submarket

Rents/Vacancy


3.4 MSF 2.2 MSF River North $38.34 / 9.4%


Labor Cost (MSA)

Software Engineer

58,531

$95,213

1450 American Ln 300 S Riverside Plz 203 N La Salle St

HOT TOPICS • Chicago tech startups are receiving seed funding, but investors are slowing the flow of capital, which is leading to a pullback of the second and third rounds of investment. • The limited tech-talent labor pool has not stopped well-funded startups and established companies from expanding. • Information and tech-related firms remain among the top users in the CBD, accounting for 11% of leasing activity in 2016—just below financial and legal services.







Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

840 820 800 780 760 740 720 700 680


SIGNIFICANT OFFICE LEASE DEALS, 2016 Paylocity Cars.com STATS, LLC


60 55 50 45 40 35 30


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

Dallas/Ft. Worth


QUICK STATS




Average Asking Rent

$23.40

Employment

92,627


17.5%


10.8%


33.4%

$/SF FSG


Top Tech Submarket

Rents/Vacancy

7.4 MSF 5.3 MSF Far North Dallas $24.67 / 14.8%



Labor Cost (MSA)

Software Engineer

$102,663

4851 Regent Blvd 8383 Dominion Dr 7250 N Dallas Pkwy

HOT TOPICS • The region has become a major tech market with a tech workforce twice the size of Austin’s and growing. • Since 2010, the number of tech-related degrees has doubled in the area, attracting both established firms and startups that are adding jobs at a faster rate than universities can produce skilled workers. • Tech companies in the Dallas/Ft. Worth market are currently looking for more than 3 million sq. ft. of space.







Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

800 750 700 650 600 550 500 450 400


SIGNIFICANT OFFICE LEASE DEALS, 2016 Atos SE CompuCom Creston Electronics


100 90 80 70 60 50 40


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

© 2016 CBRE, Inc. | 41

Pittsburgh


QUICK STATS




Average Asking Rent

$21.75

Employment


11.0%


6.3%


33.0%

$/SF FSG


Top Tech Submarket

Rents/Vacancy


0.5 MSF 1.0 MSF Oakland/East End $23.53 / 8.3%


Labor Cost (MSA)

Software Engineer

15,831

$86,659

1 Allegheny Sq 3011 Smallman St 4420 Bayard St

HOT TOPICS • The industrial history of the market coupled with top talent has further attracted uses in robotics, most notably Uber’s center for the development of the autonomous car based in Pittsburgh. • Top talent from Carnegie Mellon University and the University of Pittsburgh have attracted leading tech companies to open offices in Pittsburgh with more than 1,600 companies holding a presence. • Class A Office product in Oakland/East End is commanding the highest rents in the market on average at $38 per sq. ft.




230 220 210 200 190




Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

240


SIGNIFICANT OFFICE LEASE DEALS, 2016 Confluence Technologies Confidential Confidnetial


17 16 15 14 13 12 11 10


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

Seattle


QUICK STATS




Average Asking Rent

$30.37

Employment


11.3%


35.6%


45.4%

$/SF FSG


Top Tech Submarket

Rents/Vacancy


6.5 MSF 1.5 MSF Lake Union $41.19 / 7.9%


Labor Cost (MSA)

Software Engineer

130,714

$121,407

255 S King St 1099 Stewart St Kirkland Urban

HOT TOPICS • Economists indicate that the region is at full employment, therefore either increased labor force participation or immigration is needed to dramatically add both tech and non-tech jobs. • Geekwire reports that 77 tech companies based elsewhere have engineering offices in the Seattle area, with five of them opened in 2016. • Housing costs are rising faster than other costs affecting transplants, who cannot buy as big of a house as they could previously. This may slow the rate of migration.




120

260

100

250

80

240

60

230

40

220




Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

270


SIGNIFICANT OFFICE LEASE DEALS, 2016 Avalara Redfin Tableau


140


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

© 2016 CBRE, Inc. | 43

Detroit


QUICK STATS




Average Asking Rent

$17.82

Employment


17.7%


9.5%


29.5%

$/SF FSG


Top Tech Submarket

Rents/Vacancy


0.0 MSF 0.5 MSF Ann Arbor $21.90 / 7.1%


Labor Cost (MSA)

Software Engineer

51,969

$89,268

1965 Research Dr 123 N Ashley St One Town Sq

HOT TOPICS • The vacancy rate is at its lowest level since 2002 due to strong net absorption in the metro Detroit office market. • A number of companies are relocating to the Detroit area and expanding downtown. • Due to a flight-to-quality trend, the majority of lease transactions have been in Class A space.




500 450 400 350 300




Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

550


SIGNIFICANT OFFICE LEASE DEALS, 2016 Mackevision Duo Security Technosoft


53 50 47 44 41 38 35


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

Vancouver


QUICK STATS


OFFICE MARKET STATS, Q2 2016 $39.93 CAD 11.2%



1.6 MSF 0.4 MSF Top Tech Submarket Mt. Pleasant/False Creek Rents/Vacancy $39.39 CAD / 2.8%



260

Employment

47,200

45

240


16.3%

35

220


45.2%

25

200

15

180



Labor Cost (MSA)

Software Engineer

$122,890 CAD

2025 Willingdon Ave 9200 Glenlyon Pkwy 510/520 W Georgia St



HOT TOPICS • Since 2013, demand for office space from the tech sector has tripled and now accounts for nearly 60% of all metro Vancouver office demand. • As they face increased competition for employees and as the hiring pool of skilled workers dwindles, tech companies have become less price sensitive in their search for high-quality office space to recruit and retain top talent. • Mount Pleasant and False Creek submarkets has been highly sought after by tech tenants. Increased demand in these submarkets, and the surrounding Downtown Core, has pushed development to an all-time high in these areas.

HIGH-TECH SOFTWARE/SERVICES JOB AND OFFICE RENT GROWTH Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Market San Francisco Phoenix Austin Charlotte Indianapolis Silicon Valley Toronto New York Chicago Dallas/Ft. Worth Pittsburgh Seattle Detroit Vancouver Raleigh-Durham Nashville San Francisco Peninsula Salt Lake City Orange County Los Angeles Atlanta Boston Portland Denver Minneapolis San Diego Baltimore Washington, D.C. Metro St. Louis Philadelphia



2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: CBRE Research, Q2 2016 and Statistics Canada, August 2016


SIGNIFICANT OFFICE LEASE DEALS, 2016 Yellow Pages Limited LMI Technologies Bench Accounting


55


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

© 2016 CBRE, Inc. | 45

Raleigh-Durham QUICK STATS




Average Asking Rent

$24.10

Employment

33,271


14.6%


16.2%


44.6%

$/SF FSG


Top Tech Submarket

Rents/Vacancy

1.3 MSF 0.5 MSF RTP/I-40 Corridor $22.49 / 27.8%



Labor Cost (MSA)

Software Engineer

$103,063

6540 Franz Warner Pkwy Venture Center II 4401 Research Commons

Lenovo Bandwidth.com, Inc. CSRA Systems & Solutions

HOT TOPICS • Tech tenants continue to focus their attention on urban areas with an active live/work/play environment. • The amenities available in Downtown Raleigh, Downtown Durham, North Hills and other mixed-use urban areas attract millennials, and both established tech companies and startups are following them. • With high educational attainment and a growing millennial workforce, the Raleigh-Durham tech industry should continue on its path of high-tech innovation.

HIGH-TECH SOFTWARE/SERVICES JOB AND OFFICE RENT GROWTH High-Tech Job Growth Office Market Rent Growth Current Period Prior Period Current Period Prior Period 2013-2015 2012-2014 Q2‘14-Q2‘16 Q2‘13-Q2‘15 47.0% 42.7% 22.7% 30.7% 44.5% 41.1% 11.6% 8.3% 33.3% 33.4% 15.3% 11.4% 33.2% 18.6% 14.8% 8.0% 27.9% 25.7% 5.0% 4.0% 26.1% 27.6% 28.4% 28.0% 25.9% 5.9% -1.2% 5.0% 25.9% 22.6% 11.6% 13.4% 21.1% 17.1% 5.7% 6.2% 19.7% 10.8% 16.6% 13.4% 18.8% 14.1% 7.3% 12.4% 17.6% 18.4% 5.2% 8.9% 17.1% 9.1% 3.5% 2.2% 16.8% 10.3% 9.0% 18.4% 16.3% 14.3% 24.6% 21.2% 16.2% 23.0% 18.1% 8.9% 15.1% 14.9% 19.8% 22.4% 14.1% 16.2% 12.4% 8.8% 13.3% 12.9% 24.3% 16.1% 13.0% 6.7% 10.6% 11.8% 12.6% 7.8% 11.4% 6.1% 12.2% 8.5% 12.7% 12.9% 12.1% 17.0% 14.2% 10.7% 10.1% 10.4% 12.0% 11.8% 8.1% 7.8% 10.0% 10.9% 8.0% 7.8% 13.6% 12.7% 4.5% 4.5% -0.5% 1.0% 3.9% -2.4% -3.7% 3.4% 2.3% 9.4% -0.3% 3.1% 2.3% 2.5% 4.4% 3.0%


200 180 160 140 120 100 80 60 40 20 0






35 33 31 29 27 25 23 21 19 17 15


SIGNIFICANT OFFICE LEASE DEALS, 2016

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30



1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

Nashville


QUICK STATS






Top Tech Submarket

Rents/Vacancy


6.0% 3.6 MSF 0.4 MSF CBD $25.38 / 11.9%

Employment


12,139


7.0%


33.6%



Labor Cost (MSA)

Software Engineer

$86,066

701 Cool Springs Blvd 10th Ave South 401 Church St

HOT TOPICS • Due to overwhelming demand, upcoming office developments will cater to tech companies by providing them with a creative environment. Competition for tech talent is a central theme in occupiers’ workplace strategies. • Leasing activity remains concentrated in the urban office market, as tech tenants focus their attention on areas with a live/work/play environment. • Multiple local universities provide a young, diverse talent pool for tech companies that expand or relocate to the Nashville area.







Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

170 160 150 140 130 120 110 100


SIGNIFICANT OFFICE LEASE DEALS, 2016 Digital Reasoning PostMates Warby Parker


13 12 11 10 9 8 7 6 5 4


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

© 2016 CBRE, Inc. | 47

SF Peninsula


QUICK STATS






Top Tech Submarket

Rents/Vacancy


41,786


33.3%


51.6%


9.0%


1.3 MSF 0.8 MSF Redwood City $65.76 / 9.2%


Labor Cost (MSA)

Software Engineer

$121,626

1 Network Cir 1001 E Hillsdale Blvd 2855 Campus Dr

HOT TOPICS • Big tech moves from Palo Alto to San Mateo strengthened the tech presence on the Peninsula. These companies moved into brand-new office buildings at a lower price per sq. ft. than what is available in Palo Alto. • The increasing cost of new construction and ample M&A activity are reducing workforce sizes and directing many smaller companies to focus on sublease spaces. • Large Fortune 100 tech companies are still leasing large blocks of space in the area and tech tenants favor downtown locations with Caltrain access.





OVERALL MARKET, PAST TWO YEARS (Q3 2014 - Q2 2016) 1,090,100 SF 63,300 SF 49,300 SF


Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

90 80 70 60 50 40 30 20 10 0


SIGNIFICANT OFFICE LEASE DEALS, 2016 Confidential Activision Meta


45


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

Salt Lake City


QUICK STATS






Top Tech Submarket

Rents/Vacancy

9.8% 1.9 MSF 0.5 MSF South Valley $23.73 / 6.8%


42,873


15.9%


32.7%



Labor Cost (MSA)

Software Engineer

$95,284

75/95 W Townridge Pkwy 4205 N Chapel Ridge Rd 10355 S South Jordan Pkwy

HOT TOPICS • A young workforce (supplied by local schools such as Brigham Young University, the University of Utah and Utah Valley University) and a low cost of doing business attract tech firms to the area. • Tech firms drive significant demand for office space in Salt Lake, accounting for 37% of top leases through midyear 2016. • Tech firms remain highly concentrated in the South Valley submarket, where 1.3 million sq. ft. is under construction.







Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

240 220 200 180 160 140 120


SIGNIFICANT OFFICE LEASE DEALS, 2016 inContact Entrata InMoment


45 40 35 30 25 20 15


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

© 2016 CBRE, Inc. | 49

Orange County


QUICK STATS




Average Asking Rent

$30.12

Employment


10.0%


7.6%


38.8%

$/SF FSG


Top Tech Submarket

Rents/Vacancy

3.8 MSF 2.2 MSF South Orange County $30.96 / 6.7%



Labor Cost (MSA)

Software Engineer

32,240

$113,311

2401-2421 N. Glassell St 3345 Michelson Dr 959 South Coast Dr

HOT TOPICS • Tech demand is a larger driver of office absorption compared with previous cycles, but has dwindled substantially since the beginning of 2016. • Employment growth remains strong and existing tenants are expanding organically within the market. • The vacancy rate is low and much of the investment sales in the market are value-add, low-rise buys with the goal of creating more campus-style creative inventory, which is currently scarce in the market.







Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

430 410 390 370 350 330 310 290 270 250


SIGNIFICANT OFFICE LEASE DEALS, 2016 Volt Information Sciences Inc. Alteryx Inc. Syspro Impact Software


34 32 30 28 26 24 22 20


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

Los Angeles


QUICK STATS




Average Asking Rent

$35.02

Employment


13.8%


6.3%


30.8%

$/SF FSG


Top Tech Submarket

Rents/Vacancy

2.3 MSF 1.3 MSF Santa Monica $64.08 / 11.2%



Labor Cost (MSA)

Software Engineer

66,972

$112,695

5808 Sunset St 407 N Maple Dr 2450 Colorado Ave

HOT TOPICS • Tech demand in Greater Los Angeles remains heavily concentrated in West Los Angeles with some activity in the mediaheavy northern markets, which are predominately focused on the new media and entertainment industries. • Some Bay Area tech giants have built a sizeable presence in the West Los Angeles market. • Increased tech talent graduating from Los Angeles universities supports continued growth of tech tenants.







Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

1,100 1,050 1,000 950 900 850 800 750


SIGNIFICANT OFFICE LEASE DEALS, 2016 Netflix Fandango Oracle


70 65 60 55 50 45 40


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

© 2016 CBRE, Inc. | 51

Atlanta


QUICK STATS




Average Asking Rent

$22.85

Employment

72,218


16.9%


10.9%


37.0%

$/SF FSG


Top Tech Submarket

Rents/Vacancy

1.5 MSF 3.8 MSF Midtown $28.11 / 15.1%



Labor Cost (MSA)

Software Engineer

$95,865

1715 N. Brown Rd 3550 Lenox Rd 11675 Rainwater Dr

HOT TOPICS • A significant tech presence has moved into Midtown around Georgia Tech University, an alternative to the more tech-heavy North Fulton submarket. • As more tech workers move to Atlanta, they reside near areas areas with convenient access to mass transit. • Tech companies are following this migration in order to attract millennial talent, moving to the CBD with higher frequency.




620 600 580 560 540 520 500 480 460




Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

75 70 65 60 55 50 45


SIGNIFICANT OFFICE LEASE DEALS, 2016 Sage Software Global Payments Amdocs, Inc



1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

Boston


QUICK STATS




Average Asking Rent

$35.97

Employment


12.9%


17.2%


46.0%

$/SF FSG


Top Tech Submarket

Rents/Vacancy


3.2 MSF 4.3 MSF East Cambridge $72.64 / 2.5%


Labor Cost (MSA)

Software Engineer

109,029

$111,117

900 Chelmsford St 63 Nahatan St 1 Memorial Dr

HOT TOPICS • While tech-tenant growth abounds, there is a modest lag in Cambridge due to increased biotech demand. • Tech tenants in Cambridge and the suburbs are migrating to downtown Boston primarily for cost savings and recruiting. There has been an 11% increase in demand over the past 24 months in downtown Boston. • Tighter VC-lending requirements have created uncertainty about the future pace of tech growth. VC-backed tech tenants have changed direction from focusing on growth to focusing on the quickest path to profitability, which has an adverse effect on absorption.







Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

550 540 530 520 510 500 490 480 470


SIGNIFICANT OFFICE LEASE DEALS, 2016 Kronos TE Connectivity Confidential


120 110 100 90 80 70 60 50


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

© 2016 CBRE, Inc. | 53

Portland


QUICK STATS




Average Asking Rent

$25.00

Employment

23,583


10.0%


10.8%


37.9%

$/SF FSG


Top Tech Submarket

Rents/Vacancy

0.1 MSF 0.2 MSF Hillsboro $23.09 / 12.5%



Labor Cost (MSA)

Software Engineer

$102,277

1320 SW Broadway St 8405 SW Nimbus Ave 120 SE Clay St

HOT TOPICS • Technology firms have been the primary driver of office market activity over the past several quarters. • A slowdown in local venture capital investment has delayed the expansion of some existing technology companies in the market. • Hillsboro has historically been the most active tech submarket, but more recently startups and established firms are locating in the CBD where rates are much higher than the market average.







Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

205 195 185 175 165 155 145 135 125


SIGNIFICANT OFFICE LEASE DEALS, 2016 Confidential DAT Solutions Simple


26 24 22 20 18 16 14 12 10


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

Denver


QUICK STATS

High-Tech Software/Service Jobs (L) HIGH-TECH INDUSTRY STATS, 2015

OFFICE MARKET STATS, Q2 2016 Average Asking Rent

$25.23

Employment

58,205


11.9%


13.6%


41.8%

$/SF FSG


Top Tech Submarket

Rents/Vacancy

3.6 MSF 2.8 MSF Northwest $24.17 / 11.2%



Labor Cost (MSA)

Software Engineer

$105,617

1801 California St 11800 Ridge Pkwy 1301 Walnut St

HOT TOPICS • Colorado’s growing talent pool and cost-effective lifestyle attract coastal workers and companies. • Tech’s portion of total venture capital funding has increased significantly. Tech firms absorbed 83% of Colorado VC investment in 2015, up from just 40% in 2012. • Technology’s share of office leasing activity has been on the rise since 2011. In 2015, nearly 1.1 million sq. ft. of office space, or 16.5% of total sq. ft. leased, went to high-tech companies—the largest industry in terms of office demand in the Denver market.




55

360

50

340

45

320

40

300

35

280




Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

380


SIGNIFICANT OFFICE LEASE DEALS, 2016 SendGrid Infocrossing Twitter


60


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

© 2016 CBRE, Inc. | 55

Minneapolis


QUICK STATS




Average Asking Rent

$26.36

Employment


14.8%


9.2%


40.3%

$/SF FSG


Top Tech Submarket

Rents/Vacancy

0.4 MSF 0.9 MSF North Loop $25.42 / 6.5%



Labor Cost (MSA)

Software Engineer

42,453

$99,117

2001 Lindau Ln 100 Washington Ave 1600 Hwy 100

HOT TOPICS • Tech companies continue to expand their footprint and hiring due to an influx of capital for various ventures. • Creative office spaces and access to amenities geared toward the millennial workforce attract tech firms to the North Loop submarket, where the vacancy rate is near 7% and construction is underway on Hines’ T3 project to add supply for bigger firms that have been unable to grow in the neighborhood. • Aside from the CBD, the Northeast neighborhood is next in line for tech talent as, as high rental rates in the North Loop continue to push companies across the river into the Northeast.







Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

430 420 410 400 390 380 370 360 350


SIGNIFICANT OFFICE LEASE DEALS, 2016 Cray Code42 Software Horizontal Integration


45 40 35 30 25 20 15


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

San Diego


QUICK STATS




Average Asking Rent

$32.71

Employment


12.6%


8.9%


37.2%

$/SF FSG


Top Tech Submarket

Rents/Vacancy

0.6 MSF 1.2 MSF Sorrento Mesa $36.12 / 19.1%



Labor Cost (MSA)

Software Engineer

28,580

$108,833

5575-5788 Roscoe Ct 2091 Rutherford Rd 6420 Sequence Dr

HOT TOPICS • The lower cost of real estate and workers in attractive submarkets makes San Diego a prime location for tech companies to expand or relocate. • Emerging tech sectors include cybersecurity, big data analytics and robotics. • Downtown San Diego offers plenty of amenities catering to tech tenants, including creative work environments and lower cost spaces.







Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

320 310 300 290 280 270 260 250


SIGNIFICANT OFFICE LEASE DEALS, 2016 Cobham Laird Technologies Confidential


31 29 27 25 23 21 19 17 15


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

© 2016 CBRE, Inc. | 57

Baltimore


QUICK STATS




Average Asking Rent

$22.28

Employment

32,212


13.6%


11.3%


38.6%

$/SF FSG


Top Tech Submarket

Rents/Vacancy

1.2 MSF 1.0 MSF BWI $25.78 / 12.5%



Labor Cost (MSA)

Software Engineer

$117,119

180 Admiral Cochrane Dr 8825 Standford Blvd 135 National Business Pkwy

HOT TOPICS • The Baltimore Metro is home to one of the largest and most concentrated cybertech workforces in the country. There are over 75,000 employed in Cybersecurity related jobs in the greater Baltimore region, with over 13,000 current job openings • Small to medium-sized technology firms continue to expand, having a positive impact on the Baltimore market. • Baltimore is an attractive location for budding technology firms based on the city’s affordability, talent, access to capital and accessibility to larger hubs.







Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

255 250 245 240 235 230 225 220 215 210 205


SIGNIFICANT OFFICE LEASE DEALS, 2016 Cyber Reliant Boxtone Confidential


35 33 31 29 27 25 23 21 19 17 15


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

Washington, D.C. Metro Area

QUICK STATS




Average Asking Rent

$36.10

Employment


15.8%


20.8%


49.3%

$/SF FSG


Top Tech Submarket

Rents/Vacancy

5.5 MSF 2.4 MSF Reston/Herndon $39.47 / 14.7%



Labor Cost (MSA)

Software Engineer

175,933

$113,720

2003 Edmund Halley Dr 1765 Greensboro Station Pl 2 Wisconsin Cir

Ellucian MC Dean WeddingWire

HOT TOPICS • Washington D.C metro’s highly educated workforce attracts technology companies to the area. Cyber security in particular is a growth industry and the metro has 27,000 open cyber security positions – the top city nationwide. • The government is attracting technology companies to D.C. with various incentive programs and established tech companies are leasing large blocks of space across the market. • Following the government pullback during sequestration, technology companies have expanded in Northern Virginia, accounting for a consistent amount of net demand throughout the area.

HIGH-TECH SOFTWARE/SERVICES JOB AND OFFICE RENT GROWTH High-Tech Job Growth Office Market Rent Growth Current Period Prior Period Current Period Prior Period 2013-2015 2012-2014 Q2‘14-Q2‘16 Q2‘13-Q2‘15 47.0% 42.7% 22.7% 30.7% 44.5% 41.1% 11.6% 8.3% 33.3% 33.4% 15.3% 11.4% 33.2% 18.6% 14.8% 8.0% 27.9% 25.7% 5.0% 4.0% 26.1% 27.6% 28.4% 28.0% 25.9% 5.9% -1.2% 5.0% 25.9% 22.6% 11.6% 13.4% 21.1% 17.1% 5.7% 6.2% 19.7% 10.8% 16.6% 13.4% 18.8% 14.1% 7.3% 12.4% 17.6% 18.4% 5.2% 8.9% 17.1% 9.1% 3.5% 2.2% 16.8% 10.3% 9.0% 18.4% 16.3% 14.3% 24.6% 21.2% 16.2% 23.0% 18.1% 8.9% 15.1% 14.9% 19.8% 22.4% 14.1% 16.2% 12.4% 8.8% 13.3% 12.9% 24.3% 16.1% 13.0% 6.7% 10.6% 11.8% 12.6% 7.8% 11.4% 6.1% 12.2% 8.5% 12.7% 12.9% 12.1% 17.0% 14.2% 10.7% 10.1% 10.4% 12.0% 11.8% 8.1% 7.8% 10.0% 10.9% 8.0% 7.8% 13.6% 12.7% 4.5% 4.5% -0.5% 1.0% 3.9% -2.4% -3.7% 3.4% 2.3% 9.4% -0.3% 3.1% 2.3% 2.5% 4.4% 3.0%


700 680 660 640 620 600 580 560 540






180 175 170 165 160 155 150 145 140 135 130


SIGNIFICANT OFFICE LEASE DEALS, 2016

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30



1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

© 2016 CBRE, Inc. | 59

St. Louis


QUICK STATS




Average Asking Rent

$18.41

Employment


15.6%


7.5%


32.5%

$/SF FSG


Top Tech Submarket

Rents/Vacancy

0.2 MSF 0.3 MSF Downtown $15.70 / 27.7%



Labor Cost (MSA)

Software Engineer

19,421

$97,860

6358 Delmar Blvd 520 Maryville Ctr 999 Executive Pkwy

HOT TOPICS • The National Geospatial Agency (NGA) announced a new billiondollar campus in North St. Louis, opening that submarket to further STEM expansion. • St. Louis-based Capital Innovators was ranked third nationally in a recent CB Insights study on median funding for accelerator programs. • Development focused on tech is increasing. The Cortex innovation district announced plans for $350 million in new development over the next five years, and Innovation Plaza is planned for Downtown St. Louis.







Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

250 245 240 235 230 225 220 215 210


SIGNIFICANT OFFICE LEASE DEALS, 2016 Integrity Web TTM Technologies CloudWare


20


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

Philadelphia


QUICK STATS




Average Asking Rent

$26.72

Employment


14.6%


8.4%


36.0%

$/SF FSG


Top Tech Submarket

Rents/Vacancy

1.6 MSF 1.9 MSF University City $41.40 / 4.5%



Labor Cost (MSA)

Software Engineer

38,306

$100,405

125 Pheasant Run 401 Plymouth Rd 1275 Drummers Ln

HOT TOPICS • Philadelphia has traditionally lagged other markets in tech-sector growth, but new projects by Comcast, the University of Pennsylvania, Drexel University and local developers have reinvigorated the tech market. • The majority of Philadelphia’s technology companies primarily occupy space in suburban markets, whereas startups are typically located in the Philadelphia CBD to lure talent. • University City and the Navy Yard have more than 500,000 sq. ft. of new development under construction and millions more in the pipeline over the next 10 years.

HIGH-TECH SOFTWARE/SERVICES JOB AND OFFICE RENT GROWTH High-Tech Job Growth Office Market Rent Growth Current Period Prior Period Current Period Prior Period Rank Market 2013-2015 2012-2014 Q2‘14-Q2‘16 Q2‘13-Q2‘15 1 San Francisco 47.0% 42.7% 22.7% 30.7% 2 Phoenix 44.5% 41.1% 11.6% 8.3% 3 Austin 33.3% 33.4% 15.3% 11.4% 4 Charlotte 33.2% 18.6% 14.8% 8.0% 5 Indianapolis 27.9% 25.7% 5.0% 4.0% 6 Silicon Valley 26.1% 27.6% 28.4% 28.0% 7 Toronto 25.9% 5.9% -1.2% 5.0% 8 New York 25.9% 22.6% 11.6% 13.4% 9 Chicago 21.1% 17.1% 5.7% 6.2% 10 Dallas/Ft. Worth 19.7% 10.8% 16.6% 13.4% 11 Pittsburgh 18.8% 14.1% 7.3% 12.4% 12 Seattle 17.6% 18.4% 5.2% 8.9% 13 Detroit 17.1% 9.1% 3.5% 2.2% 14 Vancouver 16.8% 10.3% 9.0% 18.4% 15 Raleigh-Durham 16.3% 14.3% 24.6% 21.2% 16 Nashville 16.2% 23.0% 18.1% 8.9% 17 San Francisco Peninsuvla 15.1% 14.9% 19.8% 22.4% 18 Salt Lake City 14.1% 16.2% 12.4% 8.8% 19 Orange County 13.3% 12.9% 24.3% 16.1% 20 Los Angeles 13.0% 6.7% 10.6% 11.8% 21 Atlanta 12.6% 7.8% 11.4% 6.1% 22 Boston 12.2% 8.5% 12.7% 12.9% 23 Portland 12.1% 17.0% 14.2% 10.7% 24 Denver 10.1% 10.4% 12.0% 11.8% 25 Minneapolis 8.1% 7.8% 10.0% 10.9% 26 San Diego 8.0% 7.8% 13.6% 12.7% 27 Baltimore 4.5% 4.5% -0.5% 1.0% 28 Washington, D.C. Metro 3.9% -2.4% -3.7% 3.4% 29 St. Louis 2.3% 9.4% -0.3% 3.1% 30 Philadelphia 2.3% 2.5% 4.4% 3.0% Source: U.S. Bureau of Labor Statistics, Statisitcs Canada, CBRE Research, Q2 2016.




Ranked by high-tech job growth rate.

440 430 420 410 400 390 380


SIGNIFICANT OFFICE LEASE DEALS, 2016 CenTrak Brightview Landscapes Precyse Solutions


39 37 35 33 31 29 27 25


1%

3%

5%

7%

9%

11%



RENT GROWTH



3%

8%

13%

18%

23%

28%

33%

38%

© 2016 CBRE, Inc. | 61

CONTACTS

To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at www.cbre.com/researchgateway. Additional U.S. Research from CBRE can be found here. FOR MORE INFORMATION PLEASE CONTACT:

FOR MORE INFORMATION REGARDING TECH-THIRTY 2016, PLEASE CONTACT:

Scott Marshall Executive Managing Director Advisory & Transaction Services, Investor Leasing +1 630 573 7026 [email protected] Follow Scott on Twitter: @S_R_Marshall

Colin Yasukochi Director, Research and Analysis +1 415 772 0190 [email protected]

FOR MORE INFORMATION ABOUT OCCUPIER SERVICES, PLEASE CONTACT:

Whitley Collins Global President Occupier Advisory & Transaction Services +1 310 363 4842 [email protected] John Frager Executive Managing Director Technology and Media Practice +1 858 546 4694 [email protected]

// CBRE RESEARCH

2016 SCORING TECH TALENT

Influencing Innovation, Economic and Real Estate Growth in 50 North American Markets

Lexi Russell Senior Research Analyst +1 415 772 0272 [email protected] FOR MORE INFORMATION REGARDING CBRE RESEARCH, PLEASE CONTACT:

Spencer G. Levy Americas Head of Research +1 617 912 5236 [email protected] Follow Spencer on Twitter: @SpencerGLevy Andrea Cross Americas Head of Office Research +1 415 772 0337 [email protected] Follow Andrea on Twitter: @AndreaBCross

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. 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. Markets.

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.