According to JLL’s U.S. Technology Outlook, Phoenix has become a magnet to tech entities, thanks to its lower cost of doing business, including average office rents of $23.94 per-square-foot (PSF), and its educated workforce, with 29 percent of the population holding a bachelor’s degree or higher.
“Companies coming from markets like Silicon Valley, Seattle and San Francisco are accustomed to office rental rates that can exceed $100 PSF,” said JLL Senior Vice President Keith Lammersen. “In Phoenix, they find a sophisticated market with a highly skilled workforce, a great quality of life and a very modern office inventory, with rents that are extremely affordable compared to their home markets.”
The market is the perfect incubator for tech companies that are headquartered on the West Coast but need cost-effective site selection alternatives for their high-employee-count business functions such as customer success and secondary operations centers. In these cases, Phoenix offers a comparatively lower cost of real estate that, in addition to lower rents, offers benefits like higher parking ratios, which is key for many service- and support-related tech operations.
“Some of our most significant new tech commitments have come from software-related companies like Zenefits, Weebly, Oscar Health, LearnVest and ZocDoc establishing support operations here,” said JLL Executive Vice President Ryan Bartos. “But interest extends beyond software entities. We have really become a mecca for the high-employee-count tech divisions of all types of verticals, from insurance to finance to health care.”
Tempe and Scottsdale are among the market’s well-known tech hubs, with increased interest leading to a rise in rental rates. Lammersen cites Galleria Corporate Center as an example, noting that tech tenant activity has increased asking rents at the Old Town Scottsdale office project by 81 percent in just five years –to $38.00 PSF today. A similar trend is happening at Hayden Ferry Lakeside in downtown Tempe, where tech activity boosted rents in Phase I and Phase II from $28.00 and $29.00 p.s.f., respectively, in 2011 to $45.00 p.s.f. today.
This article was originally published on JLL’s The Investor.