The combination of consumers’ unquenched demand for new technology and businesses’ application of new technologies, such as cloud computing, to gain efficiencies has given the high tech industry a job growth rate nearly four times faster than the national average since the employment trough was reached inFebruary 2010 (5.1 percent vs. 1.4 percent).
Additionally, rising venture capital and initial public offering (IPO) activity is fueling key rapid evolution and growth segments of the high-tech industry.
The services sector, which excludes manufacturing components of the high-tech industry, has the greatest direct impact on office space demand and is growing even faster at 5.9 percent, according to Jones Lang LaSalle’s high tech report that tracks 18 U.S. markets and provides an overview of the impact high-tech growth is having on office space supply, demand and pricing conditions.
High-Tech Report Highlights
- The high-tech growth cycle appears to be in the early stages with plenty of running room ahead for more hiring. Data indicates that this cycle is markedly different from the tech boom of the late 1990s.
- Of the more than 500,000 office-using jobs created nationally since February 2010, 127,000 jobs or 25 percent were in high-tech services illustrating the high-tech sector’s rapid growth rate.
- High-tech has accounted for 50 percent of total venture capital funding over the past four quarters. Biotechnology and medical devices combined comprise 25 percent.
- A national office market recovery is underway with established high-tech clusters substantially outperforming other areas of the office sector by recording strong rent growth, the highest net absorption levels and diminished space availabilities.
“Consumer demand for gadgets, apps and new forms of media, coupled with businesses’ technological needs, are what’s driving high-tech employment,” said Colin Yasukochi, San Francisco-based Director of Research for Jones Lang LaSalle’s Northwest Region.
“Employment in the high-tech sector is a bright spot in an otherwise gray economic picture. While not strong enough to uplift the entire national economy, high-tech strength is impacting office markets across the country with San Francisco, Silicon Valley and Baltimore experiencing the strongest growth.”
Rising venture capital
High-tech has accounted for 50 percent of total venture capital funding over the past four quarters with biotechnology and medical devices combined comprising 25 percent. Of the high-tech funding, Silicon Valley (San Francisco Bay Area total) dominated venture capital funding at nearly 40 percent with New England taking 12 percent and New York nearly 9 percent.
Silicon Valley’s market share over the same four quarters in 2000 – the funding peak – grew by almost 8 percentage points, while most other areas remained stable or shrank.
The high-tech growth cycle is in the early stages and differs greatly from the boom of the 1990s. This time around, venture capitalists are much more cautious, funding has been more contained and the types of companies receiving funding are more viable.
Additionally, a gauge of high-tech industry strength is near its past highs, but stock valuations have declined and remain near past lows. This suggests earnings are supporting business operations and stock prices are not overvalued.
“Because venture capitalists are putting a dominant amount of money into the mobile, search, social media and cloud computing sectors of the high-tech industry we are naturally going to see increased job creation in these sectors and in the geographies where these firms reside,” said Yasukochi.
High-tech employment vs. office-using employment
Office-using employment sectors comprise 20.9 percent of total employment in the U.S., while high-tech services makes up just 1.7 percent. Nonetheless, high-tech services jobs increased by 5.9 percent from the trough, while office-using sectors increased by 1.9 percent. Though traditional office users are greater in number, high-tech office users are increasing at three times the pace, and this growth is more concentrated in specific markets thus driving office demand to a greater degree in those places.
High-tech, healthcare services and energy-related employment are the strongest sectors in the U.S. economy, which overall has struggled to regain momentum especially in recent months.
Unemployment remains high at 9.1 percent nationally as of August; however, there are bright spots in the overall employment landscape with all three of the aforementioned sectors surpassing their peak employment levels reached prior to the start of the recession, and are still adding jobs.
These three sectors account for nearly 650,000 or 35 percent of the 1.8 million jobs added since the employment trough in February 2010. High-tech employment has surged growing its job base by 5.1 percent (5.9 percent for services and 3.6 percent for manufacturing), surpassing growth of any other sector on a percentage basis.
High-tech geographic clusters benefit
Geographies with clusters of high-tech growth are experiencing dramatic impacts on office space demand and local market conditions. The national office market recovery is underway with established high-tech clusters largely outperforming other clusters and recording strong rent growth, high net absorption and diminished space availabilities.
Strongest markets nationally
San Francisco, Silicon Valley, Seattle, New York and Baltimore are the strongest markets on Jones Lang LaSalle’s high-tech industry economic cycle clock. San Francisco, San Francisco Peninsula, New York, Pittsburgh and Austin are achieving the top rent growth nationwide.
Markets with growing high-tech cluster strength and that are positioned for rising rents and demand over the next 12 months include Boston, Seattle, Portland, Raleigh-Durham and San Diego. Many of these markets are becoming landlord-favorable with more moving in that direction.
“High-tech innovations and a shift in workforce dynamics are changing the way companies view and use office space,” saidPeter Miscovich, Managing Director in Jones Lang LaSalle’s Corporate Solutions group. ”As these trends become more impactful, property owners will need to employ their own forward-looking strategies to remain relevant.”
High-tech tenants such as Facebook, Google and Zynga typically seek creative space with open work spaces, exposed ceilings and brick surfaces. Landlords are increasingly adapting and reconfiguring office space to meet these demands.
“The old rule for planning corporate real estate was that 80 percent of the space was allotted to individuals who worked in their assigned offices and 20 percent of space was collaborative, but high-tech firms were the first to pioneer the concept of more open space,” said Miscovich. “Today, 60 to 80 percent is collaborative and interactive space, and 20 to 40 percent is individual, but not territorial.”
As a result, the average amount of space allotted per employee has dropped from about 400 square feet in 1985 to 250 today. Another 100 square feet per employee is expected to drop away in the near future.
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