Tempe is quickly becoming one of the top destinations for technology companies in the country, with businesses throughout the sector vying for valuable office space in the city.
Commercial real estate firm CBRE’s annual Tech-30 report found that Tempe had the highest tech rent growth of any submarket in the U.S. over the past two years, at just under 30 percent.
That growth pushed average asking rent for office space in the city to $28.35, well above the average asking rent of $25.01 in the Phoenix Metro as a whole.
Tempe also led all submarkets in the U.S. in net absorption in the tech sector between mid-2015 and mid-2017. The city’s 33.2 percent net absorption growth led other popular submarkets like Seattle’s Lake Union (27.5 percent), Salt Lake City’s South Valley (19.3 percent) and Nashville (13.5 percent).
Net absorption refers to the total new occupied square footage in a given sector minus square footage that is no longer occupied by tenants.
Those positive net absorption numbers in Tempe are largely driven by technology companies motivated to occupy a limited amount of new Class A office space. In fact, some companies are leasing space before projects are completed.
“Vacancy in new Class A product is sub-five percent, which is effectively (fully) leased in our minds,” Calihan said.
The office vacancy rate in the downtown/Tempe Town Lake area is about two percent, Tempe Public Information Officer Kris Baxter-Ging said.
Because of that competition, businesses will pay a premium to reserve space at still-developing Class A properties like Watermark, The Grand at Papago Park Center and Liberty Center.
The activity in Tempe is driving tech sector growth in the Phoenix Metro as a whole. Chandler is also seeing increased activity in the southern part of the city where the 101 and 202 freeways meet running eastward toward Gilbert, Calihan said.
Tech tenants are attracted to the Valley for a variety of reasons, including its relative affordability compared to other popular destinations like Austin and San Francisco.
“Peak rents in Austin are about $60 per square foot, and in the Bay Area they are well over $100 (per square) foot,” Calihan said. “Peak rents in Metro Phoenix in a handful of areas including downtown Tempe are in the low $40s.”
He added, “Big drivers to the Phoenix Metro area are our affordability of labor, which compares favorably to competitors in the West and South.
The affordable cost of living is another advantage the Valley has over its peers in the region.
Despite this relative affordability, tech tenants in Arizona are still paying a premium to locate in Tempe as rents in the city are 13.4 percent higher than the broader market.
Tempe’s position as a prime market for technology companies is the result of conscious investment by the city in infrastructure over the past two decades. The city also benefits from the presence of Arizona State University, a key source of labor for technology firms, Calihan said.
“Our relationship with Arizona State University is important to continuing to draw tech,” Baxter-Ging said via email. “Not only does the university provide a well-trained workforce, it also has substantial research facilities that partner with local businesses.”
– Reach Wayne Schutsky at 480-898-6533 or firstname.lastname@example.org.