Jones Lang LaSalle Release: High-Tech Services Job Growth More than Double Rate of Other Office Users; Tech Employers Expand to Emerging Markets in Search of Skilled Workers

SAN FRANCISCO, Calif., Nov. 15, 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. The high-tech services segment 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 Boston, San Francisco, Seattle, and New York, 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 Phoenix, Las Vegas and other emerging markets.

Boston remains a major high-tech hub, home to a variety of companies ranging from established high-tech firms to innovative start-ups. In fact, Jones Lang LaSalle ranked Greater Boston third nationally for largest number of high-tech firms (5,659 firms in total). Supporting the industry is strong employment base, where 7.8 percent of total Greater Boston jobs belong to the high-tech industry. High-tech employment has grown by 2.7 percent over the year and the forecast for continued growth remains positive as the economy continues to rebound. Furthermore, Greater Boston receives 10.8 percent of total US venture capital funding (approximately $466 million).

“These indicators point to anticipated high-tech growth,” said Lori Mabardi, New England Research Manager at Jones Lang LaSalle, “which will ultimately bolster the Boston economy and support commercial real estate fundamentals.”

“The high-tech industry is driving employment gains throughout the country at a much faster rate than almost any other sector,” said Amber Schiada, Jones Lang LaSalle Research Manager for Northern California. “The labor pool is tighter in more established tech markets such as the Silicon Valley, Austin, and Seattle, prompting companies to look for space and set up shop in less-traditional markets such as Atlanta, Chicago, and Washington, DC.”

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, quirky buildings and amenity-rich, urban environments where “less is best.” Jones Lang LaSalle delineates these trends and others in its 2012 High-Technology Outlook //ADD HYPERLINK// report that tracks 20 U.S. markets and provides an overview of the sector’s impact on office space supply, demand and pricing conditions.

High-Tech Report Highlights

• High-tech services make up just 8.6 percent of office-using jobs in the U.S. but accounted for 17 percent of annual employment growth. Of the more than 653,000 office-using jobs created in the four quarters through August 2012, 108,500 were in high-tech services.

• Total venture capital dollars flowing into high-tech companies reached $15.5 billion in the four quarters through June 2012, up 13.1 percent from the year-ago period.

• Total IPO activity is off significantly in this cycle compared with 1999 and 2000, reflecting the move toward mergers and/or acquisitions as the exit strategy, rather than reliance on the public markets.

Battle for High-Tech Talent

The 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.

Regional Standouts

San Francisco, Silicon Valley, the San Francisco Peninsula, Seattle, Austin, Denver and Las Vegas are the strongest markets on Jones Lang LaSalle’s high-tech industry economic cycle clock, which measures a market’s position in the economic cycle or recovery. The top technology market for office rent growth is Silicon Valley with an outstanding 46.6 percent increase for the year, followed in ranking order by Seattle, New York, San Francisco and the San Francisco Peninsula.

“It’s interesting that the big deals are not just happening in Silicon Valley and Seattle, they’re happening in the emerging markets where the cost of real estate is lower, there’s more office product available, and competition for talent is more tame,” said Julia Georgules, Northern California Research Manager at Jones Lang LaSalle. “As for sustainability, concerns crop up when there’s a lull in leasing activity in a local market -- that doesn’t mean that the industry doesn’t continue to grow in other markets and won’t come back around.”

Looking purely at square footage of office space absorbed in high-tech submarkets relative to the size of their respective office markets, Seattle led the pack with more than 13.6 percent, followed by the San Francisco Peninsula with 9.9 percent and Atlanta with 5.3 percent.

Forecast 2013

High-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.

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