How the ‘Tech Effect’ is driving change in real estate

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IMG_3573Great minds don’t always think alike. In the tech sector the emphasis is on innovation and pushing boundaries – and the minds that do this increasingly want buildings which offer more – both in their work and home lives.

As such, companies and their employees are turning their backs on the standard office building and multifamily developments by opting for trendy “we” space where people come together over traditional “me” space.

Technology is driving alternative location choices and building characteristics for developers, investors and occupiers. And a growing number of tenants is “challenging the notion of the downtown skyscraper as the dominant symbol of corporate real estate,” as penned by The Wall Street Journal (WSJ).

Non-traditional buildings are “in incredibly high demand by the class of tenant that doesn’t want to work in a ‘Class A’ building with a lot of old guys that wear ties,” Steven Roth, chief executive of Vornado Realty Trust tells the publication.

But this doesn’t mean creative spaces are a bargain. According to the WSJ, “The property … home to Twitter’s headquarters, is one of a growing handful of low-slung former industrial buildings that are fetching prices on par with top-quality office towers.”

According to JLL research, $700 per-square-foot (PSF) is the average asking price on San Francisco’s Class A office product while Silicon Valley’s averages $600 PSF. Across the country, renowned tech-hub Boston is seeing its average Class A asking price reach $484 PSF.

Paying for the right space

For now, price does not seem to slow the rise of creative office space as the effect is being seen in markets such as Denver, Los Angeles, and Chicago. Even smaller secondary markets such as St. Louis are seeing a rise in demand for creative space: Square, a fintech company headquartered in San Francisco, recently announced they are establishing their Midwest Hub at the historic, reconverted @4240 building.

“Investor interest is starting to migrate and expand to other Bay Area and Northern California submarkets such as the East Bay, North Bay and even Sacramento as investors seek yield and relative value while still gaining exposure to the strength and growth opportunity provided by the booming Bay Area economy,” says Michel Seifer, Managing Director at JLL.

Far reaching effects

However, the office is not the only workplace component. Employers need to ensure their employees have housing options and with the significant uptick in jobs, it’s put a squeeze on multifamily availability.

JLL statistics show that in the last 10 years, the Bay Area has added 110,000 high tech jobs and more than 54,000 residents have moved to the area. As a result, renters in San Francisco are looking at $3,458 on average for a one bedroom property. This is helping fuel multifamily momentum in East Bay/Oakland, where average rent is $2,674.

And in Seattle-Bellevue, which is home to 131,187 high tech jobs, is seeing tighter multifamily fundamentals as well. Downtown Seattle’s rents reached an average of $1,871 for a one bedroom.

“Nearly 30 percent of San Francisco’s renters are millennials – they want top notch amenities like rooftops, lounges and wireless connectivity everywhere and are willing to forfeit square feet for those perks,” says John Manning, Managing Director at JLL.

But the tech effect on multifamily isn’t bound to the Bay Area or to rising rents.

Just like their tech-infused workplaces, today’s renters are after modern amenities, plenty of common space and connectivity. Consider Chicago’s JeffJack Apartments, Orlando’s The Gallery at Mills Park and Dallas’ McKinney Urban Village. All three are recently developed projects or currently under construction, and located in growing tech job markets. Amenities among the three include cyber cafés, lounges, sundecks and terraces, resort-style pools and yoga studios – all which cater to today’s tech-friendly renter profile.

As the tech sector continues to flourish, the tech effect remains in vogue. And the markets embracing this driver are set to remain or rise as top commercial real estate markets.

This article was originally published in JLL’s Real Views

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