A growing millennial population, tech job growth and tech talent labor concentration contribute to Phoenix’s rise in the ranking

PHOENIX, Arizona – Phoenix moved up two spots to #15 on CBRE’s Tech Talent Scorecard, part of its sixth-annual Scoring Tech Talent Report, which ranks 50 U.S. and Canadian markets according to their ability to attract and grow tech talent.

Tech labor concentration – or the percentage of total employment – is an influential factor in how “tech-centric” the market is and its growth potential. Phoenix has a tech talent labor pool of 83,930, or 4 percent of its total employment, compared to the national average of 3.5 percent.

The top five markets for tech talent in 2018 were the San Francisco Bay Area, Seattle, Washington, D.C., Toronto (the first time a Canadian market made the top five) and New York, all large markets with a tech labor pool of more than 50,000.

The Tech Talent Scorecard is determined based on 13 unique metrics, including tech talent supply, growth, concentration, cost, completed tech degrees, industry outlook for job growth, and market outlook for both office and apartment rent cost growth.

Phoenix stood out in the report in a number of other key areas:

• Phoenix stands out as a tech-job creator, adding 12,650 tech jobs in the last five years (2012-2017)—more jobs than well-known tech hubs like San Diego, Austin, Washington D.C. and Boston.
• Phoenix added 24,718 tech degrees between 2012 and 2016 – the 9^th highest total of the 50 markets and above Seattle and Austin.
• Phoenix has an abundance of tech talent and produces more tech graduates than jobs, making it a great market for expanding tech companies.
• The population of millennials in their 20s grew by 14,777, or 6.4 percent, between 2011 and 2016, surpassing the U.S. average of 3.7%. More millennials are moving to Phoenix than they are Los Angeles, New York and San Diego.
• Phoenix’s office rents increased 26 percent to $25.65 and its vacancy rate decreased more than seven percentage points to 16.5 percent from Q1 2013 to Q1 2018.

“Arizona’s university system, which includes Arizona State University, the University of Arizona and Grand Canyon University, is producing more tech degree graduates than there are tech jobs available in the market. Expanding tech companies in Metro Phoenix are capitalizing on this surplus of talent and able to fill positions more easily than other tech hubs,” said Kevin Calihan, executive vice president with CBRE Phoenix. “This, coupled with Phoenix’s robust net migration and growing millennial population are giving Phoenix an edge when compared to many competing tech markets. As Phoenix strengthens its position as a vibrant and growing tech market nationally, we’ll continue to see an influx of new tech companies and growth among our homegrown tech firms as well.”

CBRE’s interactive Tech Talent Analyzer found the San Francisco Bay Area, Austin and Seattle to be the most competitive markets to hire tech talent based on labor market supply/demand, wage costs and talent quality.

 “Strong economic conditions and tightening labor markets are constraining tech talent job growth and increasing costs,” said Colin Yasukochi, director of research and analysis for CBRE in the San Francisco Bay Area. “This has accelerated the expansion of tech talent pools across the U.S. to meet this demand, starting with increased numbers of tech degree graduates. Accordingly, demand for commercial real estate in large and previously under-utilized regions is on the rise from both start-ups and established companies.”

View the full report here. To view individual market statistics and rankings, including rankings on the Scorecard, access CBRE’s Tech Talent Analyzer.

Office rents on the rise in all 30 top tech submarkets in CBRE’s annual Tech-30 report 

PHOENIX, Arizona –– Buoyed by double-digit tech-sector employment growth, Phoenix was in the top third of markets in the country for rising office rents over the past two years, with 13.4 percent growth, according to CBRE’s annual Tech-30 report, which measures the tech industry’s impact on office rents in the 30 leading tech markets in the U.S. and Canada. Furthermore, Tempe saw the highest tech rent growth of any submarket in the country with just under 30 percent growth over the same period.

The influence of tech industry job creation on office market rent growth is pervasive across the U.S. and Canada, with 13 of the Tech-30 markets posting rent growth of 10 percent or more between Q2 2015 and Q2 2017. Phoenix’s high-tech employment grew 25.4 percent over 2015 and 2016, with average office asking rents rising 13.4 percent to $25.01 from Q2 2015 to Q2 2017. Tempe’s average office asking rent is $28.35.

“Overall, Metro Phoenix’s office market is performing well, with tech being a major driver,” said Bryan Taute, executive vice president with CBRE’s Phoenix office. “Downtown Phoenix and Scottsdale continue to garner attention from tech companies, but Tempe tops the charts in terms of tech rent growth. All of these areas have seen significant demand from tech companies looking to draw from a high concentration of millennials, whom they hope will fulfill their current and future labor needs. These areas also benefit from being centrally located, amenity-rich, walkable and nearby to Sky Harbor International Airport.”

“Of the top 10 markets for tech rent growth, Metro Phoenix is one of the most affordable from an office rent standpoint,” said Kevin Calihan, executive vice president with CBRE’s Phoenix office. “With prime office rents in Austin and San Francisco reaching north of $60 per square foot and $100 per square foot, respectively, and only a handful of buildings in Metro Phoenix reaching $40 per square foot, Metro Phoenix is still far more affordable than many of the other markets it competes with.”

Emerging Submarkets
According to CBRE’s Tech-30 report, the willingness of tech companies to pay a premium for office space in the hottest tech submarkets is starting to spill over into neighboring submarkets as available space in tech hotspots is dwindling. As a result, adjacent submarkets and traditional downtowns with skylines—rather than the brick-and-beam buildings tech companies have demonstrated a preference for—are primed to benefit, creating opportunity for commercial real estate investors.

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

The research found that the top tech submarkets with the lowest vacancy rates are East Cambridge (3.3 percent), Palo Alto (3.7 percent) and Mount Pleasant/False Creek in Vancouver (4 percent) as of Q2 2017.  The office rent premium paid by tenants in these markets continues to widen, with average rents for top tech submarkets increasing faster than their broader markets, with an average premium of 16.2 percent (also based on Q2 2017 data). That figure jumps substantially for markets at the top of the Tech-30 list, including East Cambridge (120 percent), Palo Alto (71 percent) and Santa Monica (92 percent). Tenants in Phoenix’s top tech submarket, Tempe, pay a premium of 13.4 percent compared to the broader market.

Conversely, several emerging tech submarkets have rent discounts, including Hillsboro, Oregon (-19 percent) and Northeast Charlotte (-18 percent).

Tempe was the top submarket for net absorption growth from Q2 2015 to Q2 2017, at 33.2 percent, followed by Nashville (13.5 percent), Seattle’s Lake Union (27.5 percent) and Salt Lake City’s South Valley (19.3 percent).

“The creation of new market opportunities via disruption and a growing number of industries integrating technology into their business models support an optimistic outlook for continued growth ahead. Commercial real estate investors should benefit from the trends that have given the tech industry greater stability and a wide economic base compared with previous economic cycles,” said Chris Ludeman, Global President, Capital Markets, CBRE.

“Ups and downs are a natural part of the business cycle, 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 investors from potential losses that were unforeseen during the last tech cycle,” added Mr. Ludeman.

Top Job Growth Markets
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 39.4 percent over the past two years, while its average asking rent increased by only 7.1 percent. Charlotte (31.6 percent), Pittsburgh (31.4 percent), Indianapolis (27.8 percent) and Phoenix (25.4 percent)—all low-cost markets—had the next highest job growth rates and rent increases of 16.9 percent, 3.5 percent, 6.5 percent and 13.4 percent, respectively.

Top Rent Growth Markets
Double-digit office rent growth was achieved in 13 markets over the past two years, led by Orange County (23.3 percent), Nashville (21.2 percent), Atlanta (17.6 percent) Charlotte (16.9 percent) and Silicon Valley (16.8 percent).

With 58.1 percent growth in tech talent since 2010, Phoenix also ranks #6 on the list of top “momentum markets”

 Los Angeles, CA – Phoenix is solidifying its position as one of the nation’s leading tech markets, jumping nine spots to #11 on CBRE Group Inc.’s annual “Scoring Tech Talent” report which ranks 50 U.S. and Canadian markets according to their ability to attract and grow tech talent. Phoenix also ranked #6 on the list overall of top “momentum markets, based on a tech talent growth rate of 58.1 percent since 2010.

“Tech talent growth rates are the best indicator of labor pool momentum and it’s easily quantifiable to identify the markets where demand for tech workers has surged,” said Colin Yasukochi, who authored the report on behalf of CBRE Research. “Tech talent growth, primarily within the high-tech industry, has recently been the top driver of office leasing activity in the U.S.”

While well established tech markets like the San Francisco Bay Area, Washington, D.C., and Seattle once again took the top spots on this year’s Tech Talent Scorecard, the report showed that competition for talent is getting tougher, as more highly skilled tech works—especially millennials—flock to cities with a growing tech presence, and cities like Phoenix are benefitting.

Despite growth in the tech sector, Phoenix remains one of the most affordable large tech-talent markets. In CBRE’s analysis of estimated one-year costs in terms of wage and rent obligation for a sample tech firm with 500 employees and 75,000 sq. ft. of office space, Phoenix ranked #26 overall with an estimated total cost of $37.5 million. This compares to estimated total costs in markets like Seattle, Denver and Austin of $47.1 million, $43 million and $40.9 million, respectively.

“The Scoring Tech Talent reaffirms what the business community in the Valley already knows – Phoenix is a great growth market for the tech sector,” said Kevin Calihan, senior vice president in CBRE’s Phoenix office. “If you look at the many recent announcements from tech-centric companies that have landed in Phoenix, one of recurring themes as to why Phoenix was chosen is because of the deep and qualified labor pool. Combine this with a really affordable operational environment and relatively low cost of living and Phoenix will continue to make the short list as tech companies relocate or expand.”

Influential Factors Shaping Tech Markets Today

The CBRE report highlighted several influential factors shaping both large and small tech markets today.

• Educational Attainment/Tech Degrees: Nearly 70 percent of the top 50 tech talent markets have an educational attainment rate above the U.S. average (30 percent). More relevant to this study is the number of graduates who have earned technology degrees. The top 10 markets ranked by the number of tech degrees completed were New York, Washington, D.C., Los Angeles, Chicago, Phoenix, Boston, the San Francisco Bay Area, Atlanta, Columbus and Detroit. Phoenix produced 44,058 tech graduates between 2010 and 2014, but only added 31,620 tech jobs between 2011 and 2015, for a net loss of -12,438 graduates, making it one of the top two “brain drain” markets along with Boston.

• Cost of Living: According to Moody’s Analytics, 36 of the top 50 tech talent markets have a cost of living above the U.S. national average. CBRE compared the average apartment rent to the average tech-worker wage in each market and found that even in the most expensive markets, tech wages are able to cover the high cost of living (using the affordability benchmark that allocates 30 percent of income to housing). That said, top momentum markets like Charlotte and Nashville, clearly benefited from affordability with wage-to-apartment rent ratios of only 13 percent and 17 percent respectively. Oklahoma City, #5 on the momentum market list, has a wage to apartment rent ratio of just 12 percent, making it the most affordable of all 50 markets examined in the CBRE report. Phoenix has a wage to apartment rent ratio of just 12.8 percent, making it the fifth most affordable tech talent market.

• Presence of millennials: The presence of higher educational institutions help markets to attract high concentrations of millennials. Madison, Pittsburgh and Boston took the top spots, each boasting millennials as 25 percent or more of the total population. Six large tech markets increased their millennial population by more than 10 percent since 2009, with Washington, D.C. growing the fastest at 25.8 percent. During the same period, five of the smaller tech markets increased their millennial population by more than 10 percent with Salt Lake City and Richmond growing at significantly faster rates than the others. Looking at metropolitan Phoenix’s millennial population growth is somewhat trickier. The Scoring Tech Talent report focused on millennial concentration in downtown areas. So, examining just the city of Phoenix, the market reflected a loss of millennial population of 4.8 percent. However, taking the entire metropolitan area into account, the Valley saw an 11.8 percent rate of growth in its millennial population.

Tech Talent Scorecard

Rankings for the Tech Talent Scorecard are determined based on 13 unique metrics including tech talent supply, growth, concentration, cost, completed tech degrees, industry outlook for job growth, and market outlook for both office and apartment rent cost growth. San Francisco Bay Area, Washington, D.C., and Seattle, once again dominated the top spots on the 2016 “Tech Talent Scorecard,” with New York and Austin rounding out the top five—a boost for Austin which ranked #8 last year.

The top 10-ranked cities on the Tech Talent Scorecard were all large markets with a tech labor pool of more than 50,000. In the number 6-10 slots were Dallas/Ft. Worth, Boston, Raleigh-Durham, Atlanta and Baltimore. Rounding out the top 15 were Phoenix, Toronto, Chicago, Orange County and Minneapolis.

To view the full report, please click here or 2016_Scoring_Tech_Talent(LO-RES).