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Here’s why Phoenix is ranked a Top 10 tech market

03 | 11 | 2020

The tech industry’s share of U.S. office-leasing activity in this year’s first half inched down to 20 percent from 21 percent last year, as tech employment has proven resilient during the pandemic, according to CBRE’s annual Tech-30 report.

Article originally posted here.

Phoenix scored well in most categories in the report, as office-rent growth notched up 8.7 percent in the two years ended June 30 and a 5.1 percent gain in net absorption of office space (demand) in that timeframe, tied for 4th position in that category. The market also had a 4.6 percent increase in its tech-job base for 2018 and 2019.

Perhaps the most resilient office markets in this downturn are leading tech submarkets, which often are located near universities. CBRE has found that average office lease rates in leading tech submarkets carry an 18 percent premium to average rates for their cities as a whole. Those with the largest premiums are East Cambridge in Boston (137 percent), Santa Monica in Southern California (70 percent) and Palo Alto in Silicon Valley (72 percent). Phoenix’s Tempe submarket ranked fourth for its 10.8 percent gain in net absorption in the two years ended June 30, and 14th for its 8.1 percent rent growth.

“Technology tenants continue to see the benefits of locating within the Phoenix Metro area, and particularly within our top tech submarket, Tempe,” said Phoenix-based Senior Vice President Michael Strittmatter. “This value proposition creates an environment for our home-grown companies to expand, as well as for us to attract inbound prospects from higher-cost markets.”

The Tech-30 report measures the industry’s impact on office demand and rents in the 30 leading tech markets in the U.S. and Canada. CBRE found that pre-pandemic office rents increased in all but one of those markets in the past two years (ending June 30), with five posting double-digit percentage gains. Net absorption – a measure of office space newly occupied in comparison to office space newly made available – registered net gains in 26 markets over those two years.

However, the impact of COVID-19 and related economic challenges clearly has affected the U.S. office market. Tech leasing activity declined by 46 percent in the second quarter from the 2019 average, in line with the 44 percent decline in overall U.S. office-leasing activity. The amount of office space offered for sublease in the Tech-30 markets increased by 42 percent, or roughly 27 million sq. ft., to a total of 90 million sq. ft. so far this year. Tech companies account for a quarter of sublease space.

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