TECHCBRE RESEARCH-THIRTY2016reasons 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

TECH-THIRTY2016CBRE RESEARCH

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

EXECUTIVE Summary

TECH-THIRTY Employment Markets

SPREADING Market Strength

TECH SUBMARKETS Outperform

SUBLEASE SPACE RISING, Particularly In Tech-Concentrated Markets

MARKET CYCLE Positioning

HIGH-TECH Industry Outlook

APPENDIX: TECH-THIRTY Market Profiles

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TABLE of Contents

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.

4 | 2016 TECH-THIRTY | CBRE RESEARCH

EXECUTIVE Summary

© 2016 CBRE, Inc. | 5

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.


TECH-THIRTY Employment Markets

75

85

95

105

115

125

135

145

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

FIGURE 1 U.S. Job Growth for High-Tech and Creative Industries Index value > 100 indicates job growth above 2007 peak

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

High-Tech Software/Services

High-Tech Manufacturers

Design Services

Media Entertainment

U.S. Total Non-Farm

Office Jobs (excl. high-tech)

Biotech

Telecom

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.

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-and-coming 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.

© 2016 CBRE, Inc. | 9

FIGURE 2 High-Tech Software/Services Job and Office Rent Growth, Past Two YearsHigh-Tech Software/Services Job Growth Office Market Rent Growth

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

GROWTH RATE

RANK MARKET

CURRENT PERIOD

Q2‘14 VS. Q2‘16

PRIOR PERIOD

Q2’13 VS. Q2’15

1 Silicon Valley 28.4% 28.0%

2 Raleigh-Durham 24.6% 21.2%

3 Orange County 24.3% 16.1%

4 San Francisco 22.7% 30.7%

5 SF Peninsula 19.8% 22.2%

6 Nashville 18.1% 8.9%

7 Dallas/Ft. Worth 16.6% 13.4%

8 Austin 15.3% 11.4%

9 Charlotte 14.8% 8.0%

10 Portland 14.2% 10.7%

11 San Diego 13.6% 12.7%

12 Boston 12.7% 12.9%

13 Salt Lake City 12.4% 8.8%

14 Denver 12.0% 11.8%

15 New York 11.6% 13.4%

16 Phoenix 11.6% 8.3%

17 Atlanta 11.4% 6.1%

18 Los Angeles 10.1% 11.8%

19 Minneapolis 10.0% 10.9%

20 Vancouver 9.0% 18.4%

21 Pittsburgh 7.3% 12.4%

22 Chicago 5.7% 6.2%

23 Seattle 5.2% 8.9%

24 Indianapolis 5.0% 4.0%

25 Philadelphia 4.4% 3.0%

26 Detroit 3.5% 2.2%

27 St. Louis -0.3% 3.1%

28 Baltimore -0.5% 1.0%

29 Toronto -1.2% 5.0%

30 Washington, D.C. metro area -3.7% 3.4%

GROWTH RATE NEW HIGH-TECH JOBS

RANK MARKET

CURRENT PERIOD2013-2015

PRIOR PERIOD2012-2014

NEW JOBS

2013-2015

AS % NEW OFFICE JOBS

2013-2015

1 San Francisco 47.0% 42.7% 22,096 62.7%

2 Phoenix 44.5% 42.7% 15,190 46.9%

3 Austin 33.3% 33.4% 10,700 40.8%

4 Charlotte 33.2% 18.6% 5,298 22.9%

5 Indianapolis 27.9% 25.7% 5,423 34.2%

6 Silicon Valley 26.1% 27.6% 27,976 72.1%

7 Toronto 25.9% 5.9% 24,900 36.9%

8 New York 25.9% 22.6% 19,677 29.7%

9 Chicago 21.1% 17.1% 10,181 24.8%

10 Dallas/Ft. Worth 19.7% 10.8% 15,265 24.7%

11 Pittsburgh 18.8% 14.1% 2,503 207.4%

12 Seattle 17.6% 18.4% 19,524 88.9%

13 Detroit 17.1% 9.1% 7,605 29.8%

14 Vancouver 16.8% 10.3% 6,800 73.9%

15 Raleigh-Durham 16.3% 14.3% 4,670 33.4%

16 Nashville 16.2% 23.0% 1,691 7.1%

17 SF Peninsula 15.1% 14.9% 5,469 62.3%

18 Salt Lake City 14.1% 16.2% 5,312 23.7%

19 Orange County 13.3% 12.9% 3,794 17.3%

20 Los Angeles 13.0% 6.7% 7,696 135.2%

21 Atlanta 12.6% 7.8% 8,071 18.4%

22 Boston 12.2% 8.5% 11,867 43.3%

23 Portland 12.1% 17.0% 2,544 16.9%

24 Denver 10.1% 10.4% 5,361 20.5%

25 Minneapolis 8.1% 7.8% 3,192 59.5%

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 68.7%

29 St. Louis 2.3% 9.4% 436 4.9%

30 Philadelphia 2.3% 2.5% 858 10.6%


FIGURE 3.1Rent Growth Overall MarketQ2 2014 VS. Q2 2016

FIGURE 3.2Rent Growth Top Tech SubmarketQ2 2014 VS. Q2 2016

Source: CBRE Research, Q2 2016.

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

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)


3%-2% 8% 13% 18% 23% 28% 33% 38%

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)

34%

© 2016 CBRE, Inc. | 11

FIGURE 3.4Net Absorption Growth Top Tech Submarket Q3 2014 - Q2 2016 (% OF BUILDING STOCK)

FIGURE 3.3Net Absorption Growth Overall Market Q3 2014 - Q2 2016 (% OF BUILDING STOCK)


-6% 4%-1% 9% 14% 19% 29%24% 34%

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)


-1% 3%1% 5% 7% 9% 11%

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)



© 2016 CBRE, Inc. | 13

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.

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

SPREADING Market Strength

100

90

80

70

60

50

40

30

20

10

0

St. Louis Baltimore

Washington D.C. Metro

Philadelphia

Los AngelesSan Diego

Orange County PhoenixNashville

Raleigh-Durham

Dallas/Ft. Worth

Salt Lake CityVancouver

Indianapolis

Toronto

High-Potential

Growth Leaders

Lagging

High-Tech Software/Services Job Strength

Offic

e Mar

ket S

treng

th

Emerging

New York

Seattle

Portland

Denver AtlantaDetroit

Boston

Chicago

MinneapolisPittsburgh

CharlotteSF Peninsula

San Francisco

Silicon Valley

Austin

0 10 30 7050 9020 40 8060 100


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 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.


$25

$27

$29

$31

$33

$35

$37

$39

$41

$43

Q1 2010 Q2 2010

Q3 2010 Q4 2010

Q1 2011 Q2 2011

Q3 2011 Q4 2011

Q1 2012 Q2 2012

Q3 2012 Q4 2012

Q1 2013 Q2 2013

Q3 2013 Q4 2013

Q1 2014 Q2 2014

Q3 2014 Q4 2014

Q1 2015 Q2 2015

Q3 2015 Q4 2015

Q1 2016 Q2 2016

Overall Tech-Thirty Tech-Thirty Submarket

FIGURE 5

Tech-Thirty Markets and Submarkets Aggregate Annual Average Asking RentPSF/ANNUAL

14.4%

© 2016 CBRE, INc. | 15


© 2016 CBRE, Inc. | 17


FIGURE 6 Tech-Thirty Aggregate Available Sublease Office SpaceMSF

54

53

52

51

50

49

48

47

46

45

2012 2013 2014 2015 2016

SUBLEASE SPACE RISING, Particularly In Tech-Concentrated MarketsNorth 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.


Tech firms account for approximately 17% of current available sublease space across the Tech-Thirty. 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


© 2016 CBRE, Inc. | 21

FIGURE 7 Sublease Risk Radar: Tech-Thirty Office MarketsOverall Risk Level: Medium-Low (Q2 2016)

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.


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.

0.0%0

100

60

80

40

10

90

50

20

70

30

1.0% 2.0%0.5% 1.5% 2.5% 3.0% 3.5%

Suble

ase G

rowt

h/Te

ch Co

ncen

tratio

n

Sublease Availability

Atlanta

MediumHigh Medium-LowMedium-High Low(0 Markets) (0 Markets) (10 Markets) (10 Markets) (10 Markets)

Orange County

San DiegoBoston Dallas/Ft. Worth

Austin

San FranciscoSilicon Valley

PhoenixWashington, D.C. Metro

HIGH CONCENTRATIONHIGH AVAILABILITY

Philadelphia

New York

DenverSF Peninsula

Salt Lake City

LOW CONCENTRATIONHIGH AVAILABILITY

Detroit

BaltimoreNashville

Indianapolis

Raleigh-Durham

Charlotte

St. Louis

LOW CONCENTRATIONLOW AVAILABILITY

TorontoPortland Los Angeles

Vancouver

MinneapolisPittsburgh

Seattle

Chicago

HIGH CONCENTRATIONLOW AVAILABILITY


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.

© 2016 CBRE, Inc. | 23

FIGURE 8

Tech-Thirty Office Market Cycle

San Francisco

Toronto

New YorkPortlandSilicon Valley

BostonChicago

Salt Lake City SF Peninsula

AustinDallas/Ft. Worth

DenverNashville

Orange CountyPittsburgh

Raleigh-DurhamSeattle

PhiladelphiaPhoenix

AtlantaIndianapolisLos AngelesMinneapolis

San Diego

CharlotteDetroit

BaltimoreSt. Louis

Q2 2009

Q2 2010

Q2 2011

Q2 2012

Q2 2013

Q2 2014

Q2 2015

VancouverWashington, D.C. Metro

Tech-Thirty Aggregate(Q2 position)

Tech-Thirty Market(Q2 2016)

Q2 2016


Rents declining, vacancy increasing, and excess new

supply additions.

Rents still declining or stable, vacancy increasing or decreasing

slowly, and limited or no new supply additions.

Rents rising at faster pace, vacancy declining, and new supply additions

underway or on the horizon.

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

Contraction Stabilization Expansion Maturation


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.

© 2016 CBRE, Inc. | 25

FIGURE 9 U.S. Index of Consumer Technology Expectations (For Spending)

65

70

75

80

85

90

95

100

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: Consumer Electronics Association, July 2016.


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.

© 2016 CBRE, Inc. | 27

Billions PSF Annual

FIGURE 10

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

$0

$10

$20

$30

$40

$50

$60

$70

$80

$0

$5

$10

$15

$20

$25

$30

$35

$40

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Software & Media/Entertainment VC Funding (L) 2016 Projection San Francisco Annual Avg Rent (R)

Source: PwC MoneyTree and CBRE Research, July 2016.


© 2016 CBRE, Inc. | 29

FIGURE 11 Shiller S&P 500 Cyclically Adjust PE Ratio (CAPE RATIO)Shiller PE Ratio

0

5

10

15

20

25

30

35

40

45

50

1884

18

87

1891

18

94

1898

19

01

1905

19

09

1912

19

16

1919

19

23

1927

19

30

1934

19

37

1941

19

44

1948

19

52

1955

19

59

1962

19

66

1970

19

73

1977

19

80

1984

19

87

1991

19

95

1998

20

02

2005

20

09

2013

Black Tuesday 1929

P/E 33

Black Monday 1987

P/E 18

Dot com Bubble 2000

P/E 44

Financial crisis 2007

P/E 28 July 2016 P/E 26

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.


APPENDIX: TECH-THIRTY Market Profiles

MARKET RANKINGS

MAJOR OFFICE LEASE TRANSACTIONS CHARTS

TECH EMPLOYMENT

QUICK STATS HOT TOPICS

© 2016 CBRE, Inc. | 31

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.

Employment Categories

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

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

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

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.

Telecom includes telecommunications.

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.


• 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.

OFFICE MARKET STATS, Q2 2016

Average Asking Rent$/SF FSG

$72.71

Vacancy Rate 6.3%New Supply Under ConstructionSublease Available

4.5 MSF2.3 MSF

Top Tech SubmarketRents/Vacancy

SOMA$72.67 / 8.5%

HIGH-TECH INDUSTRY STATS, 2015

EmploymentHigh-Tech Software/Services

69,131

Employment Clustering % of Office-Using Jobs

26.3%

Educational AttainmentResidents w/ BA or higher

51.6%

Labor Cost (MSA)Software Engineer

$121,626Source: CBRE Research, Q2 2016 and U.S. Bureau of Labor Statistics, July 2016.

SIGNIFICANT OFFICE LEASE DEALS, 2016

Fitbit 215 Fremont St 311,200 SFAirbnb 999 Brannan St 150,000 SFLyft 185 Berry St 110,700 SFSource: CBRE Research, Q2 2016.

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

HOT TOPICS

QUICK STATS

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

Source: CBRE Research, Q2 2016. 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

2013-2015Prior Period

2012-2014Current Period

Q2‘14-Q2‘16Prior Period

Q2‘13-Q2‘151 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 Peninsula 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.

San Francisco

NET ABSORPTION GROWTHOVERALL MARKET, PAST TWO YEARS (Q3 2014 - Q2 2016)















-1% 3%1% 5% 7% 9% 11%

0

50

100

150

200

250

0

20

40

60

80

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015


RENT GROWTHTOP TECH SUBMARKET, PAST TWO YEARS (Q2 2014 VS. Q2 2016)















-2% 3% 8% 13% 18% 23% 28% 33% 38%

© 2016 CBRE, Inc. | 33
















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%

• 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.


Hotchalk Inc. 1721 W Rio Salado Pky 40,800 SFSAP 1101 W Washington St 40,000 SFSynergy Solutions, Inc 3141 N 3rd Ave 39,000 SFSource: CBRE Research, Q2 2016.

HOT TOPICS

QUICK STATS











PhoenixOFFICE MARKET STATS, Q2 2016


$23.61


1.8 MSF2.1 MSF


Tempe$25.74 / 9.1%



49,303


9.6%


29.4%





360 380 400 420 440 460 480 500

0 10 20 30 40 50 60

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015



• 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.



$33.22


1.6 MSF2.3 MSF


Northwest$32.99 / 10.4%



42,861


18.5%


42.6%




Indeed.com 6433 Champion Grandview Way 200,000 SFSamsung 3900 N Capital of Texas Hwy 112,000 SFOracle 9500 Amberglen Blvd 79,700 SFSource: CBRE Research, Q2 2016.


HOT TOPICS

QUICK STATS












Austin

100

120

140

160

180

200

15

25

35

45

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%

© 2016 CBRE, Inc. | 35

• 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.



$23.44


1.5 MSF0.3 MSF


Northeast$19.62 / 6.2%



21,274


9.6%


33.5%


$99,569


Townsquare Interactive 200 S Tryon St 51,300 SFIMAGINE Software 8757 Red Oak Blvd 36,900 SFAdvantage Solutions 3525 Whitehall Park Dr 23,700 SFSource: CBRE Research, Q2 2016.

HOT TOPICS

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Charlotte

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



130 140 150 160 170 180 190 200 210

10 12 14 16 18 20 22

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%


• 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.



$18.09


0.2 MSF0.4 MSF


CBD $19.33 / 17.4%



24,831


11.1%


32.9%


$81,414


Interactive Intelligence Woodland Pk 390,400 SFConfidential 111 Monument Cir 227,800 SFBlue Horseshoe 11939 N Meridian St 25,000 SFSource: CBRE Research, Q2 2016.

HOT TOPICS

QUICK STATS











Indianapolis


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


120

140

160

180

200

220

0 5

10 15 20 25 30

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%

© 2016 CBRE, Inc. | 37

• 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.



$55.08


9.1 MSF1.5 MSF


Palo Alto$100.33 / 3.5%



135,114


42.0%


48.7%


$145,555


Qualcomm 1700 Technology Dr 365,500 SFCambridge Industries 2445 Augustine Dr 74,400 SFTelenav 4655 Great America Pkwy 54,600 SFSource: CBRE Research, Q2 2016.

HOT TOPICS

QUICK STATS











Silicon Valley




125 135 145 155 165 175 185 195 205

50

70

90

110

130

150

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%


• 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.



$33.96 CAD


3.9 MSF2.1 MSF


Toronto Downtown West $42.94 CAD / 5.4%



120,900


14.0%


41.9%


$118,158 CAD


Shopify Inc. 602-620 King St W 112,000 SFCaseWare 1 Toronto St 60,000 SFPoints.com 111 Richmond St W 42,000 SFSource: CBRE Research, Q2 2016.

HOT TOPICS

QUICK STATS











Toronto

Source: CBRE Research, Q2 2016 and Statistics Canada, August 2016



400 450 500 550 600 650 700 750 800

60 70 80 90

100 110 120 130

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%

© 2016 CBRE, Inc. | 39

• 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.



$75.38


11.4 MSF

7.0 MSFTop Tech SubmarketRents/Vacancy

Midtown South$72.70 / 5.3%



95,592


9.0%


38.0%


$112,296


Confidential 57 11th Ave 263,800 SFConfidential 1095 Avenue of the Americas 202,700 SFConfidential 225-233 Park Ave S 199,200 SFSource: CBRE Research, Q2 2016.

HOT TOPICS

QUICK STATS











New York




700 750 800 850 900 950 1000

34 44 54 64 74 84 94

104

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%


• 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.



$28.99


3.4 MSF2.2 MSF


River North $38.34 / 9.4%



58,531


6.7%


36.0%


$95,213


Paylocity 1450 American Ln 309,600 SFCars.com 300 S Riverside Plz 158,000 SFSTATS, LLC 203 N La Salle St 76,900 SFSource: CBRE Research, Q2 2016.

HOT TOPICS

QUICK STATS











Chicago




680 700 720 740 760 780 800 820 840

30 35 40 45 50 55 60

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%

© 2016 CBRE, Inc. | 41

• 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.


Atos SE 4851 Regent Blvd 100,000 SFCompuCom 8383 Dominion Dr 92,000 SFCreston Electronics 7250 N Dallas Pkwy 84,600 SFSource: CBRE Research, Q2 2016.

HOT TOPICS

QUICK STATS











Dallas/Ft. WorthOFFICE MARKET STATS, Q2 2016


$23.40


7.4 MSF5.3 MSF


Far North Dallas$24.67 / 14.8%



92,627


10.8%


33.4%





400 450 500 550 600 650 700 750 800

40 50 60 70 80 90

100

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%


• 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.



$21.75


0.5 MSF1.0 MSF


Oakland/East End $23.53 / 8.3%



15,831


6.3%


33.0%


$86,659


Confluence Technologies 1 Allegheny Sq 40,900 SFConfidential 3011 Smallman St 28,500 SFConfidnetial 4420 Bayard St 20,100 SFSource: CBRE Research, Q2 2016.

HOT TOPICS

QUICK STATS











Pittsburgh




190

200

210

220

230

240

10 11 12 13 14 15 16 17

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%

© 2016 CBRE, Inc. | 43

• 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.


Avalara 255 S King St 133,300 SFRedfin 1099 Stewart St 112,900 SFTableau Kirkland Urban 92,000 SFSource: CBRE Research, Q2 2016.

HOT TOPICS

QUICK STATS











SeattleOFFICE MARKET STATS, Q2 2016


$30.37


6.5 MSF1.5 MSF


Lake Union$41.19 / 7.9%



130,714


35.6%


45.4%





220

230

240

250

260

270

40

60

80

100

120

140

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%


• 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.



$17.82


0.0 MSF0.5 MSF


Ann Arbor $21.90 / 7.1%



51,969


9.5%


29.5%


$89,268


Mackevision 1965 Research Dr 30,000 SFDuo Security 123 N Ashley St 30,000 SFTechnosoft One Town Sq 25,000 SFSource: CBRE Research, Q2 2016.

HOT TOPICS

QUICK STATS











Detroit




300

350

400

450

500

550

35 38 41 44 47 50 53

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%

© 2016 CBRE, Inc. | 45

• 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.


Yellow Pages Limited 2025 Willingdon Ave 76,500 SFLMI Technologies 9200 Glenlyon Pkwy 62,400 SFBench Accounting 510/520 W Georgia St 48,100 SFSource: CBRE Research, Q2 2016.

HOT TOPICS

QUICK STATS











VancouverOFFICE MARKET STATS, Q2 2016


$39.93 CAD


1.6 MSF0.4 MSF


Mt. Pleasant/False Creek$39.39 CAD / 2.8%



47,200


16.3%


45.2%


$122,890 CAD Source: CBRE Research, Q2 2016 and Statistics Canada, August 2016



180

200

220

240

260

15

25

35

45

55

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%


• 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.



$24.10


1.3 MSF0.5 MSF


RTP/I-40 Corridor $22.49 / 27.8%



33,271


16.2%


44.6%


$103,063


Lenovo 6540 Franz Warner Pkwy 241,000 SFBandwidth.com, Inc. Venture Center II 87,600 SFCSRA Systems & Solutions 4401 Research Commons 30,100 SFSource: CBRE Research, Q2 2016.

HOT TOPICS

QUICK STATS











Raleigh-Durham




0 20 40 60 80 100 120 140 160 180 200

15 17 19 21 23 25 27 29 31 33 35

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%

© 2016 CBRE, Inc. | 47

• 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.


Digital Reasoning 701 Cool Springs Blvd 50,000 SFPostMates 10th Ave South 20,000 SFWarby Parker 401 Church St 14,400 SFSource: CBRE Research, Q2 2016.

HOT TOPICS

QUICK STATS











NashvilleOFFICE MARKET STATS, Q2 2016


$22.93


3.6 MSF0.4 MSF


CBD$25.38 / 11.9%



12,139


7.0%


33.6%





100 110 120 130 140 150 160 170

4 5 6 7 8 9

10 11 12 13

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%


• 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.



$59.64


1.3 MSF0.8 MSF


Redwood City $65.76 / 9.2%



41,786


33.3%


51.6%


$121,626


Confidential 1 Network Cir 1,090,100 SFActivision 1001 E Hillsdale Blvd 63,300 SFMeta 2855 Campus Dr 49,300 SFSource: CBRE Research, Q2 2016.

HOT TOPICS

QUICK STATS











SF Peninsula




0 10 20 30 40 50 60 70 80 90

20

25

30

35

40

45

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%

© 2016 CBRE, Inc. | 49

• 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.


inContact 75/95 W Townridge Pkwy 150,000 SFEntrata 4205 N Chapel Ridge Rd 106,000 SFInMoment 10355 S South Jordan Pkwy 62,700 SFSource: CBRE Research, Q2 2016.

HOT TOPICS

QUICK STATS











Salt Lake CityOFFICE MARKET STATS, Q2 2016


$22.52


1.9 MSF0.5 MSF


South Valley$23.73 / 6.8%



42,873


15.9%


32.7%





120 140 160 180 200 220 240

15 20 25 30 35 40 45

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%


• 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.



$30.12


3.8 MSF2.2 MSF


South Orange County $30.96 / 6.7%



32,240


7.6%


38.8%


$113,311


Volt Information Sciences Inc. 2401-2421 N. Glassell St 190,000 SFAlteryx Inc. 3345 Michelson Dr 40,200 SFSyspro Impact Software 959 South Coast Dr 28,800 SFSource: CBRE Research, Q2 2016.

HOT TOPICS

QUICK STATS











Orange County




250 270 290 310 330 350 370 390 410 430

20 22 24 26 28 30 32 34

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%

© 2016 CBRE, Inc. | 51

• Tech demand in Greater Los Angeles remains heavily concentrated in West Los Angeles with some activity in the media-heavy 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.


Netflix 5808 Sunset St 123,200 SFFandango 407 N Maple Dr 95,000 SFOracle 2450 Colorado Ave 92,000 SFSource: CBRE Research, Q2 2016.

HOT TOPICS

QUICK STATS











Los AngelesOFFICE MARKET STATS, Q2 2016


$35.02


2.3 MSF1.3 MSF


Santa Monica$64.08 / 11.2%



66,972


6.3%


30.8%





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

40 45 50 55 60 65 70

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%


• 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.



$22.85


1.5 MSF3.8 MSF


Midtown $28.11 / 15.1%



72,218


10.9%


37.0%


$95,865


Sage Software 1715 N. Brown Rd 91,000 SFGlobal Payments 3550 Lenox Rd 78,400 SFAmdocs, Inc 11675 Rainwater Dr 37,000 SFSource: CBRE Research, Q2 2016.

HOT TOPICS

QUICK STATS











Atlanta




460 480 500 520 540 560 580 600 620

45 50 55 60 65 70 75

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%

© 2016 CBRE, Inc. | 53

• 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.



$35.97


3.2 MSF4.3 MSF


East Cambridge $72.64 / 2.5%


Kronos 900 Chelmsford St 435,000 SFTE Connectivity 63 Nahatan St 156,600 SFConfidential 1 Memorial Dr 155,800 SFSource: CBRE Research, Q2 2016.

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BostonHIGH-TECH INDUSTRY STATS, 2015


109,029


17.2%


46.0%





470 480 490 500 510 520 530 540 550

50 60 70 80 90

100 110 120

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%


• 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.



$25.00


0.1 MSF0.2 MSF


Hillsboro $23.09 / 12.5%



23,583


10.8%


37.9%


$102,277


Confidential 1320 SW Broadway St 101,400 SFDAT Solutions 8405 SW Nimbus Ave 53,800 SFSimple 120 SE Clay St 50,000 SFSource: CBRE Research, Q2 2016.

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Portland




125 135 145 155 165 175 185 195 205

10 12 14 16 18 20 22 24 26

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%

© 2016 CBRE, Inc. | 55

• 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.



$25.23


3.6 MSF2.8 MSF


Northwest $24.17 / 11.2%


SendGrid 1801 California St 52,100 SFInfocrossing 11800 Ridge Pkwy 29,200 SFTwitter 1301 Walnut St 29,000 SFSource: CBRE Research, Q2 2016.

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DenverHIGH-TECH INDUSTRY STATS, 2015


58,205


13.6%


41.8%





280

300

320

340

360

380

35

40

45

50

55

60

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%


• 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.



$26.36


0.4 MSF0.9 MSF


North Loop $25.42 / 6.5%



42,453


9.2%


40.3%


$99,117


Cray 2001 Lindau Ln 89,500 SFCode42 Software 100 Washington Ave 67,700 SFHorizontal Integration 1600 Hwy 100 26,600 SFSource: CBRE Research, Q2 2016.

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Minneapolis




350 360 370 380 390 400 410 420 430

15 20 25 30 35 40 45

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%

© 2016 CBRE, Inc. | 57

• 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.



$32.71


0.6 MSF1.2 MSF


Sorrento Mesa $36.12 / 19.1%


Cobham 5575-5788 Roscoe Ct 132,700 SFLaird Technologies 2091 Rutherford Rd 62,400 SFConfidential 6420 Sequence Dr 60,000 SFSource: CBRE Research, Q2 2016.

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San DiegoHIGH-TECH INDUSTRY STATS, 2015


28,580


8.9%


37.2%





250 260 270 280 290 300 310 320

15 17 19 21 23 25 27 29 31

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%


• 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.



$22.28


1.2 MSF1.0 MSF


BWI $25.78 / 12.5%



32,212


11.3%


38.6%


$117,119


Cyber Reliant 180 Admiral Cochrane Dr 16,800 SFBoxtone 8825 Standford Blvd 15,000 SFConfidential 135 National Business Pkwy 13,400 SFSource: CBRE Research, Q2 2016.

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Baltimore




205 210 215 220 225 230 235 240 245 250 255

15 17 19 21 23 25 27 29 31 33 35

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%

© 2016 CBRE, Inc. | 59

• 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.



$36.10


5.5 MSF2.4 MSF


Reston/Herndon $39.47 / 14.7%


Ellucian 2003 Edmund Halley Dr 97,500 SFMC Dean 1765 Greensboro Station Pl 85,500 SFWeddingWire 2 Wisconsin Cir 67,500 SFSource: CBRE Research, Q2 2016.

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Washington, D.C.HIGH-TECH INDUSTRY STATS, 2015


175,933


20.8%


49.3%





540 560 580 600 620 640 660 680 700

130 135 140 145 150 155 160 165 170 175 180

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015


Metro Area
















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%


• The National Geospatial Agency (NGA) announced a new billion-dollar 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.



$18.41


0.2 MSF0.3 MSF


Downtown $15.70 / 27.7%



19,421


7.5%


32.5%


$97,860


Integrity Web 6358 Delmar Blvd 12,000 SFTTM Technologies 520 Maryville Ctr 5,100 SFCloudWare 999 Executive Pkwy 5,000 SFSource: CBRE Research, Q2 2016.

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St. Louis




210 215 220 225 230 235 240 245 250

10

12

14

16

18

20

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%

© 2016 CBRE, Inc. | 61

• 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.



$26.72


1.6 MSF1.9 MSF


University City $41.40 / 4.5%


CenTrak 125 Pheasant Run 32,100 SFBrightview Landscapes 401 Plymouth Rd 26,100 SFPrecyse Solutions 1275 Drummers Ln 13,500 SFSource: CBRE Research, Q2 2016.

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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%


PhiladelphiaHIGH-TECH INDUSTRY STATS, 2015


38,306


8.4%


36.0%





380 390 400 410 420 430 440

25 27 29 31 33 35 37 39

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

















-1% 3%1% 5% 7% 9% 11%
















-2% 3% 8% 13% 18% 23% 28% 33% 38%

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.

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]

John FragerExecutive Managing DirectorTechnology and Media Practice+1 858 546 [email protected]

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

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

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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.

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

Andrea CrossAmericas Head of Office Research+1 415 772 [email protected] Andrea on Twitter: @AndreaBCross

//2016 SCORING TECH TALENTInfluencing Innovation, Economic and Real Estate Growth in 50 North American Markets

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TECHCBRE RESEARCH-THIRTY2016reasons 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

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