Sep 12, 2016, 2:10 AM
Do you fear for the future of the tech industry because of slowing VC investment and a dry IPO pipeline? Fear not.
True, economic expansion in general is beginning to slow after nearly seven years of growth. But the technology sector is still the leading industry for real estate expansion and employment growth. In short, it’s not going anywhere but up—it just might be going up a little more slowly than we’ve gotten used to.
Our 2016 Tech Outlook compiles tons of research into one report that covers everything you might want or need to know about tech today in the United States. If you want to dive deep with us, get it here. But if you just want the gist, here are the top 10 trends we identified—with charts!—to help you understand tech’s role in our economy, and your company’s role within it.
Get your local market's complete report
1. Technology remains the leading industry for real estate expansion in the United States, and has fast become a key economic driver in many cities.
Tech companies are consistently driving the most leasing activity across the country—nearly 25% of all leases over 20,000 square feet in the past two years—followed distantly by banking and finance companies.
2. National tech employment may be slowing, but it’s still driving employment growth in the United States.
Tech is outpacing total employment growth by two to one.
3. As tech companies continue to add to their employee bases, there will be a heightened focus on diversity.
Current research shows that a diverse employment base leads to greater innovation, a stronger culture and better financial performance. Tech companies nationwide are committing resources and pledging to adopt more inclusive hiring practices, with the goal of creating workforces that reflect their customer bases and the population at large.
4. The tech industry continues to be a key focus for VCs, representing 72% of activity this year to date. Momentum, however, is slowing.
Why the slowdown?
- As tech grows up, VCs are getting more focused on business fundamentals, favoring firms with solid business plans and strong customer bases.
- Discrepancies between public and private valuations, poor IPO performance from recent public market entrants and general market volatility have caused many VC firms to pump the brakes.
5. Well-funded, late-stage startups will continue to grow their real estate footprints, but at a less aggressive rate given the tightening funding environment.
Larger companies with multiple locations will likely continue to grow in secondary tech markets. Here, they’ll find the same exposure to talent and capital that they need to prepare for future exits.
6. Seed and early-stage companies will become more sensitive to the cost of real estate as funding becomes harder to obtain.
We expect them to focus more on a gradual expansion in home markets, versus establishing beachhead locations in major tech centers where high barriers to entry make it tough to find both space and talent.
7. Though there’s promise for renewed IPO activity, tech companies looking for an exit are increasingly turning to acquisition.
The IPO drought we’ve seen since the beginning of the year reflects investors’ tightened funding conditions, and a shift of VC funding toward late-stage companies. One-third of 2015 IPOs are trading below their initial offering price—including several ambitious startups whose private valuations far exceeded their value on the public market. As a result, many tech companies have postponed or withdrawn IPO filings while others are lowering their initial offering price to raise the likelihood of a day one “IPO pop.” Others are turning to M&As.
Disruptive technologies are affecting how traditional businesses operate, forcing them to re- align themselves to current trends. Non-tech related buyers accounted for approximately 25.0% of global M&A transactions in Q1 2016, up significantly from 3.0% in Q4 2015. Honeywell, Verizon, General Motors, and Walmart have all recently made significant acquisitions, investing in technologies that will expand their businesses organically, and help them remain competitive against their disruptive counterparts—a major trend in tech M&A.
8. Tech companies that can afford to will continue to pay a premium for locations that attract and retain the brightest talent and have a strong tech ecosystem.
Just compare the table below to the one from trend #6.
9. Priced out of some established tech hubs, early-stage firms may seek more affordable secondary markets with strong, diverse talent and industry momentum.
Our Tech Locator Matrix helps technology companies of any size determine which of 45 U.S. cities we analyzed is best suited for their growth plans.
Over the course of this cycle (and with more than just tech companies) central business districts (CBDs) and dense, urban neighborhoods have been making headlines as they welcome migrating tenants and millennials, pushing vacancy to pre-recession lows while rents jump in the hottest locations.
Importantly, submarkets most popular among tech companies five years ago remain among the most popular today—highlighting a city’s power for investors, owners, and developers. Explore your options with our interactive Matrix map here.
10. Established tech hubs like the Bay Area, Boston and New York will remain the centers of innovation for the foreseeable future, while smaller markets are being legitimized by brand-name tech.
From San Francisco and Seattle-Bellevue to South Florida and Charlotte, there’s no question that the tech industry is planting roots across the country. So how do you know where there’s staying power?
JLL’s Tech Market Score is determined by an analysis of each market’s economic momentum, talent pool, innovation and cost—and aims to help real estate investors quickly gauge a market’s resilience through periods of economic contraction.
Not enough info for you?
Download the complete 2016 U.S. Technology Office Outlook, or the local report for your market of interest.
Get your local market's complete report
Research: Amber Schiada, Julia Georgules, Patricia Raicht, Christan Basconcillo | Editor: Laurel Miltner