Smaller Cities, Bigger Growth: Finding Tech Companies Where You Least Expect

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Dec. 13, 2016

tech companies

No longer sequestered on the West Coast, the technology industry has been growing in cities nationwide.

Across the country, tech companies have consistently driven the most leasing activity in recent years, averaging 22.3 percent of large-block leasing. Banking and finance companies follow distantly, comprising 10.3 percent of leasing activity since the third quarter of 2014.

Though the San Francisco Bay area remains the most concentrated technology leasing market, corporate expansion and startup growth into smaller cities has given legs to a new growth driver in unexpected markets. Smaller cities like Boise, Cleveland, Detroit and Indianapolis are just some of the surprising locations where tech companies and startups are headed.

Over the course of this business cycle, technology companies have come to be viewed as coveted tenants. Because the industry’s growth is outpacing other sectors, tech company growth has an inordinate impact on local economies. In turn, tech companies give secondary markets and up-and-coming submarkets a geographic stamp of approval. Over the past four quarters, 63.4 percent of technology companies leasing 20,000 square feet or more were in growth mode, compared to the overall U.S. rate of 48.9 percent. Additionally, only 4.6 percent of tech companies were shrinking their real estate footprint versus the U.S.’ 6.5 percent.

Smaller markets are being legitimized by brand name tech. Where tech-leasing activity has been highest over the past year, market fundamentals are also among the strongest in the country. Development activity in the top 15 tech-leased submarkets comprises nearly 18 percent of the total development pipeline – proof of where the demand is focused.

Tech companies generally look for expansion in cities offering affordable office space, ample housing and easy access to talent and venture capital. JLL’s interactive Locator Matrix tool can be used to determine the best location for growth, and tracks current trends in startup and established tech company leasing.

The sweet spot for growing technology companies, especially those with cost top of mind, are markets like Raleigh-Durham, Atlanta, Northern Virginia and Chicago. These markets, along with others like them, have the strongest metrics for tech growth, such as access to capital and a deep and highly-educated talent pool.

While the usual suspects like San Francisco and Silicon Valley still hold clear advantages for established tech companies, smaller cities that were once an afterthought now supply the elements to foster growth.

As the Energy Capital of the world, Houston is still working to establish itself as a nascent tech market. Read about the opportunities for the expansion of tech within Houston.

To download JLL’s U.S. Technology Office Outlook, click here.

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