By Roland Murphy for Arizona Builder’s Exchange
With 3.9MSF of office space under construction and the lowest average apartment rent of 37 reported markets, the Phoenix area offers strong appeal to technology firms.
According to a recent JLL report, the Loop 101 corridor, also known as the Silicon Desert, offers both challenge and opportunities for tech firms looking to locate here. Companies have a talent pool of young and educated workers to draw from, but space is competitive in the most in-demand areas, reducing options for large tenants.
While northern California’s iconic Silicon Valley remains the desired and de facto home for technology company headquarters, the need for growth coupled with that area’s high rental costs is pushing companies to look to different markets for supplemental space.
“Technology companies and startups 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. “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.”
JLL states in the past year 34 technology companies expanded into new locations in 19 U.S. markets, laying claim to more than 2.1MSF of office space.
The report also notes an interesting change in startup financing and location. In 2014, 75.8 percent of “unicorn companies” – startups with valuations of more than $1B – were located in San Francisco and Silicon Valley. In 2015 that percentage dropped to 59.2 percent.
JLL has developed a “Locator Matrix” to help tech firms evaluate the best location for continued expansion. Criteria considered are:
- Technology economic momentum
- Size and education of the Millennial talent pool
- Area friendliness to startups (number of startups in the area, level of growth in patents, presence of high tech headquarters, access to venture capital)
- Other market factors such as office and housing space costs
Phoenix ranks well for low costs and high startup opportunities.
The Phoenix area has seen numerous development projects in recent years that incorporate the tech sector’s push toward open, collaborative office environments. In addition, several Valley cities have approved new and infill projects designed around the live/work/play model popular among Millennials and technology workers.
“Other markets are not competing against Silicon Valley. They’re competing to be more like Silicon Valley,” said Julia Georgules, Director of U.S. Office Research for JLL. “Technology has become so pervasive in business that it’s now becoming a part of every industry and every market. This is generating a new momentum and energy in smaller markets and making them attractive to the type of talent that the technology industry is recruiting.“
The cultural shift in the Phoenix area couples nicely with the economic benefits. JLL estimates companies locating in Phoenix versus Silicon Valley can save up to 42 percent in annual costs per employee and 76 percent in total lease costs.