In the last article, I discussed the number one trend impacting the estate decisions of technology companies across the country, talent. In this article, we’re moving on to the second most impactful trend, cost. Knowing and understanding these trends will give you a leg up as you plan your real estate strategy.
Trend 2: Cost is irrelevant
The future of work is changing, and making good investments in the workplace is becoming more and more critical to a company’s success. Companies that focus on the location of their office, as well as the human experience of their workplace, will be most successful. While a nicer office, location, and amenities may cost more, what a company will get in return is worth every penny.
This is entirely true in Phoenix. The submarkets along the 101 (Tempe, South Scottsdale, Central Scottsdale), where tech companies have been locating to access the Millennial labor population, are some of the most expensive submarkets in Metro Phoenix. For example, average Class A office rents in Tempe are currently at $35.15, 18 percent higher than the Metro Phoenix Class A average.
While the office rents may be higher, there are a lot of desirable amenities in these areas, such as restaurants/bars and attractive housing options nearby. Therefore, tech companies are willing to spend a little more on rent to provide their employees with a great live, work, play environment. Companies are recognizing that employee wellness and happiness will lead to higher productivity, which will outweigh the higher rental costs in the long run.
GoDaddy is an excellent example of this. The company moved from North Scottsdale to the Southeast Valley where the talent is concentrated. The company built a fantastic campus with a basketball court, race track, slides, and more to give their employees a great experience when they come to work.
Recently, Downtown Phoenix has emerged as the next hot tech submarket, boasting hundreds of newly developed multifamily units, creative adaptive re-use projects, ample amenities and fantastic access to public transportation. Situated close to numerous downtown amenities with access to the Phoenix Valley Metro Light Rail, the Warehouse District, specifically, is gaining favor among tech tenants. Aside from its significant cost savings, the former warehouse space is charming tenants who want an engaging, creative office product.
In the startup world, cheaper rent can be extremely attractive for various reasons. But, depending on your growth projections, and talent required to meet those projections, it is sometimes valuable to take a closer look at office options that may cost a little more.
Stay tuned for my next article in which I’ll explore trend number three: reversal of density.