California will likely never lose its stronghold on the technology industry, but that does not mean that other areas aren’t slowly becoming alternatives to the West Coast.
Jones Lang Lasalle (JLL) recently released a report about these trends. In the 2015 United States Technology Office Outlook Report, San Francisco, Silicon Valley and LA lead the pack in venture capital funding in Q3 2014 to Q2 2015 by a huge margin. But, other areas are making a respectable showing in the venture capital game.
Washington, D.C. is one of those areas. For that time period, the VC funding that poured into DC stands at $209.35 million. That’s a fraction of what goes into California’s hot spots, but is a respectable showing on a list of heavy hitters.
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JLL identifies DC as a top place to watch in the developing migration of the tech sector, which is where most of that VC cash is going. Washington, D.C.’s proximity to emerging residential neighborhoods is playing right into the hands of the tech sector, as it tries to grab the top talent to push its startups and established companies. Nearby universities provide a deep pool of talent to draw from, although competition for space in the industry remains fierce.
Even though JLL is a commercial property company, what it has to say about growth in the office sector casts a big shadow over the real estate market.
What they see, across the country, is office occupancy growth. New buildings that will come online over the next few years also show the expected demand to continue, as many of those spaces are pre-leased.
If you are a budding tech firm that wants to plant your flag in Palo Alto, you’d better be flush with cash. Downtown Palo Alto space goes for $98.68 per square foot. And that’s not the highest that California has to offer.
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“Technology companies and start-ups need to look at a full range of options as part of their location strategy,” said Steffen Kammerer, leader of JLL’s Technology Practice group, in a statement.
“These companies have to grow. They can still hold a headquarters in the Bay Area, but their offices in secondary or tertiary markets can sometimes support larger staffs or hold just as much strategic importance to their business plans. We’re seeing this now more than ever.”
In 2014, 75.8 percent of the approximately 145 unicorn companies were located in San Francisco and Silicon Valley. This year, that number has slipped to just under 60 percent. The rest of the companies that are in the $1 billion-plus club are headquartered in Boston, DC, Oakland-East Bay, Orange County and Utah.
So, that means that companies are putting their offices in smaller, less expensive markets from an office space price perspective. And, many of those markets, like DC, come with a well-educated workforce, good public transportation and a quality of life that is world-class.
The strongest sector in the report for renting space is the tech sector, which make up 20.5 percent of space. Next, was the banking, finance and insurance sectors, which scooped up 15.3 percent of the square footage.
With that prevalence of tech companies, other markets don’t seek to compete with Silicon Valley– they want to emulate it, just without the high housing prices that result.
