CRE recovery improves in tech markets

Many tech markets have experienced improved commercial real estate recovery.

Even with economic difficulty throughout much of the country, the tech sector has flourished. According to National Real Estate Investor, this has helped commercial property managers in cities rich in these tech firms.

San Francisco and San Jose are both thought of as top markets for technology, but other areas such as Austin, Boston, Seattle, Denver and others have been successful, as well, the news source explained. Many areas with strong tech sectors have witnessed a jump in rent growth and occupancies.

The nine metropolitan statistical areas examined by the news source had a total vacancy rate of 3.6 percent. This was much lower than the nearly 5 percent of all major MSAs tracked by Reis, the news source noted. Overall, tech-oriented MSAs had a total drop in vacancy rate of approximately 360 basis points since the vacancy peak in 2009. For non-tech cities, the drop was only 330 basis points.

Many landlords in tech markets have made the decision to increase rent levels significantly, instead of trying to race to keep up with demand, the report found. Asking rents rose in tech cities by 1.2 percent during the second quarter, while effective rents improved 1.4 percent. Other MSAs experienced an asking rent rise of 1 percent, on average, while effective rents were up only 1.2 percent.

When examining the year ending in the second quarter, tech cities had asking and effective rent rises of 3.3 percent and 4.2 percent, respectively, the report explained. The other markets only earned growth of 2.6 percent for asking rents, as well as only 3.3 percent for effective rents. During this cycle, tech markets experienced an improvement of nearly 7 percent for asking rents, while non-tech markets were only slightly above 5 percent. Effective rents rose by more than 8.5 percent for tech cities, while the rest were a full 2 percentage points behind.

The report added that office vacancy declines for tech markets fell by 151 basis points since the peak in 2010. This was much better than the latest figure for non-tech markets, which was slightly more than 30 basis points. In addition, office space in tech cities experienced a net absorption of only 15 percent of total inventory, but produced more than one-third of the occupied stock since 2010.

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