the five surprising markets tech investors should explore
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Five surprising tech markets investors should exploreU.S. Technology Outlook
2016Fall ULI Meeting
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Where should you explore?
• 29.3% with bachelor’s degree or higher• Overall direct asking rent: $18.38 p.s.f.
MadisonTech industry niche: Agriculture
• 20% with bachelor’s degree or higher• Overall direct asking rent: $18.32 p.s.f.
DetroitTech industry niche: Automotive
• 29.4% with bachelor’s degree or higher• Overall direct asking rent: $23.94 p.s.f.
PhoenixTech industry niche: Service/Support
• 32.4% with bachelor’s degree or higher• Overall direct asking rent: $25.24 p.s.f.
DallasTech industry niche: Computers, IT, Telecom and Biotech
• 40.0% with bachelor’s degree or higher• Overall direct asking rent: $25.76 p.s.f.
MinneapolisTech industry niche: Healthcare
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Detroit
1 Auto industry drives tech
Detroit’s technology prowess comes from its well-known ‘Motor City’ moniker, with technology’s role and investment in the automobile industry remaining prominent as ever.
The market’s average office rent per-square-foot is $18.32, making it the lowest-cost market. Occupying 5,000 square feet in Detroit is an approximate 63 percent discount compared to coastal high-cost markets.*
Residential occupancy rates in the high-90 percent range as a younger, tech-focused workforce looks to live in the urban core.
“There is some deferred maintenance and asset pricing has started to rise, but investors are finding real value in Detroit by acquiring at a premium and catering to tech tenants by playing off a building’s charm and unique features.”
- Dave MacDonald, Managing Director, JLL Agency Leasing
*JLL Research
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Madison
2 Small but mighty
Small but mighty is a succinct way to describe Madison, Wisconsin’s office investment market which totals approximately 30 million square feet of office inventory, compared to Chicago’s 234.5 million square feet.*
But a perhaps unexpected growing force of Madison’s economy is the technology sector, which received $39 million in venture capital funding from Q3 2015 to Q2 2016.
The University of Wisconsin-Madison serves as the market’s tech anchor: the well-known research hub is particularly renowned for agricultural technology and also fosters a tech-workforce.
“Investors are drawn to the tech sector stability provided by the university, combined with a business environment that encourages growth and collaboration.”
- Jim Postweiler, Managing Director, JLL Capital Markets
*JLL Research
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Phoenix
3 Tech heats up
While Arizona and technology may not be obvious bedfellows, the data has been tabulated and the results are in: tech in the desert is hot.
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, and its educated workforce, with 29 percent of the population holding a bachelor’s degree or higher.*
Phoenix’s close proximity to heavy-hitting Western tech markets also offers a geographic advantage, putting the Valley within a short plane ride of most headquarters.
“Companies coming from markets like Silicon Valley, Seattle and San Francisco are accustomed to office rental rates that can exceed $100 per square foot. 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.”
- Keith Lammersen, Senior Vice President, JLL Tenant Rep
*JLL Research
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Minneapolis
4 Non-traditional tech firms grow tech business
From Target to 3M, Minneapolis is home to 17 Fortune 500 corporations: blue-chip firms that aren’t often associated with the tech sector. However, much of the market’s investment appeal is credited to the fact that a significant number of these companies have growth tied to the tech side of their business.
Total venture capital funding from Q3 2015 to Q2 2016 reached $168.8 million, a 55 percent year-over-year increase in Minneapolis.
With UnitedHealth Group’s Optum division and St. Jude calling Minneapolis home, healthcare and medical technology serve as major tech drivers in the market.
“Minneapolis offers a high quality of life and compared to traditional, coastal tech hubs, a lower cost for office and multifamily real estate. All of this bodes well for investment resilience.”
- Steve Buss, Managing Director, JLL Capital Markets
*JLL Research
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Dallas
5 Tech drives office acquisitions and repositions
The combination of tech stability and growth, paired with a comparatively low barrier to entry and low cost of real estate is appealing to a wide array of investors looking to secure a yield premium.
Net leased square footage runs about $30 per-square-foot (p.s.f.) while traditional tech hubs may see pricing reach up to $60 p.s.f.
More than one million square feet has been leased by tech companies between Q3 2015 to Q2 2016. With nearly a third (32.4%) of the population holding a bachelor’s degree or higher, the talent pool supports this growth.
“If it’s a repositioning play, the planned upgrades are slanting towards tech. Investors are taking a more targeted approach on where they place capital and a building’s infrastructure is an increasingly significant factor. When they see a property they want, they’ll compete for it.”
- Jack Crews, Managing Director, JLL Capital Markets
*JLL Research
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Contacts
Dave MacDonaldManaging DirectorAgency LeasingDetroit, MI+1 248 581 [email protected]
Jim PostweilerManaging DirectorCapital MarketsMidwest region+1 312 228 [email protected]
Peter HarwoodExecutive Vice PresidentCapital MarketsMidwest region+1 312 228 [email protected]
Jack CrewsManaging DirectorCapital MarketsDallas, TX+1 214 438 [email protected]
Ryan BartosExecutive Vice PresidentAgency LeasingPhoenix, AZ+1 602 282 [email protected]
Keith LammersenSenior Vice PresidentTenant RepPhoenix, AZ+1 602 282 [email protected]
Steven BussManaging DirectorCapital MarketsMinneapolis, MN+1 612 217 [email protected]
Julia GeorgulesDirectorU.S. Office ResearchAmericas+1 617 316 [email protected]
Amber SchiadaDirectorResearchNorthern California+1 415 395 [email protected]
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