San Francisco remains the leading U.S. tech market, but the competition for talent is getting tougher as more highly skilled tech workers—especially millennials—are flocking to cities where the cost of living is lower and tech jobs are plentiful, according to CBRE Group’s annual research report Scoring Tech Talent, which ranks 50 U.S. and Canadian markets according to their ability to attract and cultivate tech talent.
In their quest for highly skilled talent and a lower cost of doing business, both new and expanding companies are establishing footprints in these more affordable markets—including Nashville, Charlotte, Tampa, Seattle, and Phoenix—leading to a rise in demand for office space and a decrease in office vacancy.
“Tech talent markets share several distinct characteristics, including high concentrations of college-educated workers, major universities producing tech graduates, and large millennial populations,” says Colin Yasukochi, who wrote the report on behalf of CBRE Research. “The robust entrance of millennials into the labor pool contributed greatly to the growth in tech talent across all 50 downtown markets in our ranking this year.”
Tech Talent Scorecard
Established tech markets—the San Francisco Bay area; Washington, D.C.; and Seattle—once again dominated the top spots on the 2016 Tech Talent Scorecard, with New York City and Austin rounding out the top five—a boost for Austin, which ranked number eight last year. Rankings for the scorecard are determined according to 13 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.
The top ten cities on the scorecard are all large markets, each with a tech labor pool of more than 50,000. Ranked sixth through tenth are Dallas/Fort Worth, Boston, Raleigh-Durham, Atlanta, and Baltimore. Rounding out the top 15 are Phoenix, Toronto, Chicago, Orange County, and Minneapolis.
Top Momentum Markets
Meanwhile, small markets took dominant positions on the list of top “momentum markets,” which ranks cities according to tech-talent growth rates between 2010 and 2015. Charlotte and Nashville, which saw rate increases of 75 and 68 percent, respectively, topped this year’s list.
“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 Yasukochi.
Factors Shaping Tech Markets Today
The CBRE report highlighted several 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, with Seattle and Washington, D.C., boasting more than 50 percent of residents age 25 years and older with a bachelor’s degree or higher; the U.S. average is 30 percent. More relevant to this study is the number of graduates who have earned technology degrees. The top ten markets ranked by the number of tech degrees completed are New York City; Washington, D.C.; Los Angeles; Chicago; Phoenix; Boston; the San Francisco Bay area; Atlanta; Columbus, Ohio; and Detroit. A comparison of tech job creation to tech degree completion places the San Francisco Bay Area (89,600) and Dallas (25,500) at the top among the net job creators; Boston (–17,200) and Phoenix (–12,400) had net job creation deficits.
- 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. 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 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 apartment-rent-to-tech-wage ratios of only 13 percent and 17 percent, respectively. Oklahoma City, number five 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 studied in the CBRE report.
- Presence of millennials. The presence of higher-education institutions helps markets 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 have increased their millennial population by more than 10 percent since 2009, with that population growing the fastest in Washington, D.C., at 27.1 percent. During the same period, five of the smaller tech markets increased their millennial populations by more than 10 percent, with Salt Lake City and Richmond growing at significantly faster rates than the others.
Impact on Office Markets
“Although a relatively small portion of the economy, tech talent employers spurred economic activity and added more than 1 million tech jobs during the past five years,” says Yasukochi. “As a result, tech talent growth has recently been the top driver of office leasing activity in the U.S., and high-tech companies are now one of the main drivers of commercial real estate activity.”
High-tech companies’ nationwide share of major leasing activity increased from 11 percent in 2011 to 18 percent in 2015—the largest single share of any industry. Many tech talent markets, especially those with high concentrations or clusters of tech companies, have seen rising rents and declining vacancies as a result. Significant demand for office space in top markets that have added tens of thousands of workers during the past five years has raised rents to their highest levels and pushed down vacancy rates to their lowest. Rent growth is most prominent in the large tech markets, with office rents in the San Francisco Bay area nearly double what they were five years ago. But the decrease in vacancy rates is present across both large and small tech markets, with the Nashville vacancy rate the lowest of the top 50 tech talent markets.
Of the 50 tech markets analyzed in the CBRE report, those experiencing the largest rent increases from 2011 to 2016 are the San Francisco Bay area (95 percent), New York City (46 percent), Austin (30 percent), Boston (27 percent), and Denver (27 percent). Tech markets experiencing the largest decreases in office vacancy during the same time period are Austin (12.2 percentage points), Toronto (12.1 percentage points), Vancouver (10.1 percentage points), Tampa (9.2 percentage points), and Charlotte (8 percentage points).
