San Francisco remains the nation’s leading 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, Inc.’s annual Research report, “Scoring Tech Talent,” which ranks 50 U.S. and Canadian markets according to their ability to attract and grow tech talent.
In their quest for highly skilled talent and for 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,” said Colin Yasukochi, who authored 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.”
Established tech markets, namely 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 and Austin rounding out the top five—a boost for Austin, which ranked #8 last year. Rankings for the Tech Talent Scorecard are determined based on 13 unique 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 10-ranked cities on the Tech Talent Scorecard were all large markets, each with a tech labor pool of more than 50,000. In the number 6-10 slots were Dallas/Ft. Worth, Boston, Raleigh-Durham, Atlanta and Baltimore. Rounding out the top 15 were Phoenix, Toronto, Chicago, Orange County and Minneapolis.
Meanwhile, small markets took dominant positions on the list of top “momentum markets,” which ranks cities based on tech talent growth rates between 2010 and 2015. Charlotte and Nashville, which saw tech talent growth rate increases of 75 percent 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 Mr. Yasukochi.
The top 10-ranked momentum markets and their associated tech talent growth rates were: Charlotte, NC, 74.7 percent, Nashville, TN, 67.9 percent, SF Bay Area, CA, 61.5 percent, Baltimore, MD, 61.4 percent, Oklahoma City, OK, 59 percent, Phoenix, AZ 58.1 percent, Austin, TX, 51.8 percent, Tampa, FL 50.9 percent, Seattle, WA 50.2 percent, Vancouver, BC 50.1 percent.
The CBRE report highlighted several influential 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 (30 percent), with Seattle and Washington, D.C. boasting more than 50 percent of residents age 25 years and older with Bachelor’s degrees or higher. More relevant to this study is the number of graduates who have earned technology degrees. The top 10 markets ranked by the number of tech degrees completed were New York, Washington, D.C., Los Angeles, Chicago, Phoenix, Boston, the San Francisco Bay Area, Atlanta, Columbus and Detroit. When comparing tech job creation to tech degree completion, the San Francisco Bay Area (89,600) and Dallas (25,500) were the largest net job creators, while 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. national 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 high 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, #5 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 examined in the CBRE report.
Presence of Millennials: The presence of higher educational 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 increased their millennial population by more than 10 percent since 2009, with Washington, D.C. growing the fastest 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.
“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,” said Mr. 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’ share of major leasing activity increased from 11 percent in 2011 to 18 percent in 2015 nationwide—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 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 rate 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 cost increases from 2011-2016 are the San Francisco Bay Area (+95 percent), New York (+46 percent), Austin (+30 percent), Boston (+27 percent) and Denver (+27 percent).
Tech markets experiencing the largest office vacancy rate decreases during the same time period were 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).