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High-tech an employment expansion powerhouse for San Diego; Beacon Capital Partners responds to market with major renovation and future expansion planned for San Diego Tech Center
SAN DIEGO, Calif., Nov. 19, 2012 — In a year of tepid overall employment growth, job gains in software and other high-tech services have provided a welcome infusion of economic activity and demand for office space in select markets across the nation, including San Diego. The high-tech services segment nationwide added 108,500 jobs in the 12 months ended Aug. 31, an increase of 4.6 percent. That growth rate is more than 2.5 times faster than in overall office-using employment, which increased by 2.3 percent with the addition of 28.5 million jobs in the same period.
While the impact of the sector’s employment growth is strongest in long-established hubs including San Francisco, Seattle, New York and Boston, mobile technologies pioneered by the industry have enabled its employers to branch out and permeate major office markets across the nation. In a promising development for landlords, a growing scarcity of available, qualified workers in established innovation centers is driving new clusters of activity in emerging markets.
High-tech continues to be a major driver in San Diego for employment growth and office space absorption. While the rest of the office-using labor market in San Diego has fallen dramatically over the last few years, the high-tech market has continually expanded, even during the recession. The industry makes up nearly 10 percent of office-using employment in the region, up from 6.8 percent of the total seen in 2004. The high-tech industry in San Diego is defined not only by its large size, but also by its diverse nature and overlap into a broad group of related and complementary industries.
Buoyed by an incredibly diverse intellectual capital base and a number of large multinational tech headquarters, San Diego continues to attract not only mid- to large-cap technology firms, but many small firms as well, supported by a strong entrepreneurial spirit and desire to be in-the-mix with some of the top companies. As a result, a few key tech-centric submarkets have emerged thanks to proximity to local universities and an extended group of vibrant yet affordable residential communities. Sorrento Mesa and UTC/Eastgate are the two primary tech submarkets and continuously benefit from growth seen within the industry as tenants within the sector expand their occupancy footprint. The Sorrento Mesa and UTC/Eastgate submarkets have seen demand increase and rents appreciate in recent quarters, with most of the available space over 40,000 square feet having being snapped up.
Local universities will continue to push thousands of graduates into the labor market each year, helping San Diego to remain at the forefront of the high-tech industry. Office and flex space – particularly in the primary submarkets – is forecasted to be absorbed at a quicker pace than elsewhere in the county, and submarkets like Kearny Mesa and Scripps Ranch, located adjacent to Sorrento and UTC, will also benefit from a demand spillover.
With high-tech companies providing one of the strongest engines of job growth and demand for office space, savvy landlords are increasingly catering to the technology sector’s preferences for open space and amenity-rich, urban environments where “less is best.”
For example, after purchasing San Diego Tech Center earlier this year, Beacon Capital Partners, LLC plans to invest more than $3.5 million over the next 12 months to ensure the technology campus maintains its position as one of San Diego’s premier locations for technology firms. Renovations include the refinishing of the building exteriors, LEED Silver certification of 9605 Scranton Road, top-of-the-line equipment for the gym, elevator modernization, renovation of the on-site restaurant and refreshing the landscape and project signage.
“Despite the fact that San Diego Tech Center is 95 percent occupied, Beacon realizes the importance of catering to the evolving demands of the tech sector,” said Tim Olson, Vice President at Jones Lang LaSalle. “Additionally, Beacon Capital Partners plans to further accommodate technology companies and other large tenants searching for corporate office space by offering from 100,000 up to 342,000 square feet of newly built office space on the San Diego Tech Center campus.”
The site for Beacon’s planned office space is fully entitled for up to five additional buildings totaling approximately 1.32 million square feet. The first phase includes a 342,000 square foot Class A office building and a parking structure and can be delivered within 14 months. The buildings will achieve LEED Gold certification, have large 30,000 SF floor plates and will offer freeway visible signage that is exposed to more than 200,000 cars per day.”
Jones Lang LaSalle delineates these high-tech market trends and others in its 2012 High-Technology Outlook report that tracks 20 U.S. markets, including San Diego, and provides an overview of the sector’s impact on office space supply, demand and pricing conditions.
National High-Tech Report Highlights
Battle for High-Tech TalentThe high-tech industry has experienced a fundamental shift since the dot.com bust, with concentrated investment in hardware and chip manufacturing giving way to a more recent explosion in services and software development in particular. Mobile phone applications, cloud computing, social media, and game developers are shaping the tech industry of today, and unfettered by manufacturing activities that tied an earlier generation of companies to specific markets.
Technology companies today are more likely to base site-selection decisions on access to intellectual capital, and favor markets that offer the urban living and amenities that young knowledge workers seem to prefer. Even in largely suburban communities such as San Diego, Austin, and Phoenix, tech activity is increasingly clustered in urban cores.
Rather than go head-to-head with other employers to hire programmers, marketers, and business developers, a growing number of companies are locating in emerging markets that offer lower costs and more affordable space. Las Vegas, for example, added 6,898 tech jobs in 2011 for a 22.9 percent year-over-year gain, taking the No. 2 spot on Jones Lang LaSalle’s ranking of markets by high-tech employment growth. San Francisco retained the lead with 28.6 percent annual job growth in 2011, the most recent year for which individual market numbers are available.
On the opposite end of the spectrum, Orange County and Los Angeles were the only two markets posting high-tech job losses, with minimal contractions in each.
In a herald of real estate demand to come, venture capital activity is ramping up and supporting start-up activity that will likely bring future job creation as new firms gain their footing and begin to grow. Venture capital dollars flowing into high-tech companies totaled $15.5 billion in the four quarters through June 2012, up 13.1 percent from the same period a year ago. Start-up activity is concentrated around markets with high intellectual capital, typically university centers and urban locales.
Forecast 2013High-tech clusters accounted for nearly one-third of net absorption gains in the past year. For a sector with a proportionately smaller job base, this speaks volumes about the impact this industry is having on the office market as a whole. Jones Lang LaSalle expects this trend will continue into 2013; strong global consumer demand for an ever more social and mobile world will drive industry growth and venture capital funding for the foreseeable future. The high-tech industry is in the early stages of the business cycle and has room to grow.
Innovators face fewer barriers to entry to get a company off the ground in this tech cycle than they did 12 years ago. Reliance on the cloud rather than numerous servers, multi-channel advertising that better targets consumers and a larger potential customer base overall are driving company formation and reducing the initial capital investment required. While it may be easier for more businesses to be formed, longer-term, the industry will work through merger and acquisition activity and show signs of maturation.
Jones Lang LaSalle predicts steady employment growth and continued demand for real estate throughout the country from this unique industry cluster. About Jones Lang LaSalle Jones Lang LaSalle (NYSE: JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2011 global revenue of $3.6 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 200 corporate offices. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 2.1 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with $47 billion of assets under management. For further information, please visit www.joneslanglasalle.com.
Jennifer Whitelaw, TW2 Marketing
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