CBRE: High Tech Economy Grows at Six Times the National Average
The U.S. high-tech economy has grown nearly six times faster than the national average, fueled by demand for mobile, search, social and cloud computing software and service technologies.
This according to the CBRE U.S. Tech-Twenty Office Markets reports, which can be read in its entirety by clicking on the Full Screen button at the bottom of the SCRIBD document below.
Between 2009 and mid-2012, high-tech services jobs grew 9.9%, while total non-farm jobs grew 1.7%.
Compared to other creative industries, high-tech services is the breakaway leader, with growth well above its 2007 peak. Biotech is modestly above its 2007 peak, but performance has been up and down. Media and entertainment is staging a comeback after diving in 2009, thanks to its increasing connection to the high-tech industry.
High-tech manufacturing remains weak and job levels are near historic lows. Compared to key office-space-using industries, the job growth rate of high-tech services was 2.5 times faster between 2009 and mid-2012 (9.9% vs. 3.9%).
These job growth trends for the “Tech-Twenty,” the most influential high-tech oriented cities, show both strength and variance. With limited growth in the office-space using job categories, the concentration of key high-tech services sectors within these cities is driving both economic and office market performance.
San Francisco, New York City and Silicon Valley stand out with very high job and office rent growth. Los Angeles, Philadelphia and Orange County have some pockets of high-tech growth, but not enough to keep their office markets from struggling.
Tech-Twenty office submarkets posted even stronger performance.
Seven submarkets had two-year rent growth above 10%; Mountain View (S.VLY), at 83%, and SOMA (SFO), at 59%, were the highest. The strongest east coast submarkets were East Cambridge (BOS), at 28%, and Midtown South (NYC,) at 24%. Ten submarkets grew demand or net absorption as a percentage of building stock by more than 10% in two years, led by Lake Union (SEA), at 22%, Hillsboro (POR), at 19% and SOMA (SFO) at 11%.
HIGH-TECH INDUSTRY-POWERED MARKETS THRIVE, OTHERS SLOW TO REVIVE
The Tech-Twenty office markets are experiencing recovery and moving briskly along the rent cycle curve. Between the second quarters of 2009 and 2011, the composite of all twenty markets moved from an accelerating rent decline 3.9 position to a bottom of the market 9.1 position.
The past year showed further improvement to a current 10.1 position of rent growth acceleration. The markets with the fastest improvement and highest current position numbers are New York, San Francisco, Austin and Silicon Valley.
High-tech services job growth is largely responsible for this movement and when combined with the strength of each office market, the CBRE High-Tech Power
ECONOMIC AND HIGH-TECH INDUSTRY OUTLOOK
The recent deceleration of U.S. and global economic activity may spell near-term trouble for the overall U.S. office market, but not necessarily for high-tech.
Economic data shows a slowdown in the labor markets, consumer spending and business investment that may lead to a loss in leasing momentum for the remainder of 2012.
While most high-tech driven markets have been largely immune to broad economic trends for years, the protracted slow growth scenario that’s emerging could cool off the hottest markets. Equity and venture capital markets are pausing to reassess valuations and growth trajectories in light of the global economic headwinds encompassing the eurozone, China, and a U.S. economy unable to shift into higher gear.
While economic worry may be surfacing within the hightech industry, all signs point to further growth ahead.
Venture capital investment dollars are still flowing into the high-tech industry and increased scrutiny has resulted in greater funding focus on software and the internet sector, as well as the most promising start-ups.
According to 2012 Thomson Reuters data, venture capital investment in software is at an all-time high of 30% of total funding volume, and that volume remainsnear the robust levels of 2011. Just like real estate investors, venture capitalists remained focused on the top metro markets in the San Francisco Bay Area, New York and Boston, with an eye on opportunity in other emerging geographies.
Furthermore, the nature of this high-tech business cycle is more disciplined, with constant equity market scrutiny of earnings and growth projections.
Business models for many firms are based on unique product offerings and large volumes of micro revenues. Slower consumer spending overall seems unlikely to have major impact on high-tech as consumers allocate more toward gadgets and apps.
The Index of Consumer Technology Expectations, which measures consumer expectations about their technology spending, has steadily risen since 2009. The online and mobile growth trend is still in its early stages with tremendous long-term growth and undoubtedly several business cycles ahead.
The main threat to high-tech growth is another financial-crisis-type event.