Phoenix Sees Uptick in Tech Job Growth, Leasing, CBRE Report Says

Article originally posted on HERE on November 9, 2023

After a year of headwinds, some normalcy is returning to the technology sector as office leasing decisions are starting to be made in the Valley and beyond.

CBRE Group Inc. recently published its “Tech 30” report, which measures 30 leading U.S. markets that have experienced the most tech sector growth over the last 10 years and how their jobs and office rent have grown over the last two years.

Phoenix saw a 13.4% bump in high-tech software and service jobs in 2021-2022, which put it 10th on the Tech 30 list behind San Francisco and ahead of Seattle. That accounts for more than 12,000 new jobs in the sector.

The new tech jobs have also made an impact on leasing and rental rates. Phoenix saw a 6.3% bump in rent growth between Q2 2021 and Q2 2023, ranked No. 13 on that list behind Philadelphia and ahead of Dallas-Fort Worth.

“High-quality space is still in demand, and increasing rents suggest a steady need for office space despite negative absorption trends,” said Tim Kempton, an associate with CBRE, in a statement. “Venture capital is crucial for the viability of tech companies in their nascent stages. Due to the increased funding to Arizona-based companies, mainly attributed to funds such as PHX Ventures and AZ-VC, we continue to see an upward trend in high-tech job growth.”

Kempton said Tempe remains the top Valley submarket for tech leasing because of its proximity to Arizona State University, which is developing an emerging workforce. Tempe also benefits from being centrally located within the Phoenix metro, being easily accessible by freeways and holding some of the most premier office space in all of the Valley.

While the asking rates have remained strong, the vacancy rates in Tempe have climbed over the past two years as high-profile companies including DoorDash, Carvana, OpenDoor, Peloton and Robinhood recently elected to downsize or move out of their space. That took place as some of the big tech firms, such as Meta Platforms Inc. and Salesforce Inc., contemplated reducing office footprints while Carvana and Amazon planned big job cuts.

But those tides could be turning nationally. CBRE found that September 2023 marked the fewest monthly tech layoffs since June 2022. The tech sector also claimed a 16.5% share of all office leasing as 7.3 million square feet was leased during Q3 2023 — moving back ahead of the finance and insurance sectors. During Q4 2022 those numbers were at a 10-year low of 9.3% of all office leasing activity, according to CBRE.

Kempton expects Tempe to remain the premier submarket for tech companies, though he is monitoring south Scottsdale as a possible emerging hub given the walkable amenities Old Town provides.

Recent tech leasing deals

Earlier this month, the Business Journal reported social media giant TikTok leased 58,477 square feet at the Galleria Corporate Centre in Old Town Scottsdale. Stockdale Capital Partners LLC, which owns and operates the Galleria, told the Phoenix Business Journal that it is trying to establish the building as a “preeminent tech hub in Greater Phoenix” while it sees an increase in demand for space.

TikTok looks to join a tenant mix at Galleria that includes Zillow, Square, Indeed and Scottsdale-based startup Qwick.

CBRE found that some of the other recent tech deals include two AI companies — Dialpad and Stax — which respectively leased 11,784 and 9,786 square feet. Dialpad is headed to Hayden Ferry Lakeside II in Tempe while Stax is leasing at Raintree Corporate Center in north Scottsdale. PHX Ventures, a software investment company founded by Gregg Scoresby, leased 3,846 square feet at the new-look Arbor Tempe on Mill Avenue.

“Technology growth is funded by venture capital and venture capital right now is following AI,” Kempton said. “The AI companies are definitely the buzz not only around the Valley but across the country and the world, so I think we’ll continue to see that trend of funding going toward these companies, which then allows them to lease office space around the greater Phoenix metro.”

Last month, the Urban Land Institute found Phoenix to be the No. 2 market to watch in the country for overall real estate prospects. Phoenix ranked behind Nashville and above Dallas-Forth Worth in the study, dubbed the Emerging Trends in Real Estate Report 2024.