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JLL: No end in sight for tech's voracious office-space appetite

The tech boom has led the technology industry to become the largest customer for U.S. commercial real estate, with 2017 leasing volume from growing tech companies expected to top 2015 and 2016 levels, according to JLL's seventh annual technology outlook.

In its latest report, JLL's Technology Research Group identified some of the biggest trends that are affecting the real estate decisions of U.S. tech companies.

Tech companies are taking up office space in cities across the country as they search for talent, driving local economic growth in these areas along the way. With the competition for talent high, many tech companies have been aggressively growing in markets outside the usual tech hubs, JLL said.

Among primary commercial real estate markets, West Coast tech hubs continue to be the most saturated with tech leasing activity. The largest expansions year-to-date are led by Facebook Inc., which gobbled up 436,000 square feet of space and created about 3,000 jobs in San Francisco, followed by Lyft Inc. and Infosys, which took up 91,000 square feet in Silicon Valley, Calif., and 60,000 square feet in Raleigh-Durham, N.C., respectively. Secondary and tertiary markets, which are less exposed to tech, are likely to be the beneficiary of these corporate expansions as tech companies search for the best talent. Compared to primary and secondary tech hubs, leasing in emerging markets still remains diverse, JLL said.

Tech companies are also choosing better offices, locations and amenities irrespective of the costs, JLL said. Based on the national average, the amount that tech tenants pay for fit-out costs comes to $168.91 per square foot. The top market by the premium a company can expect to pay to fit out a tech space over the U.S. average is Sacramento, Calif., at 30.7%, followed by Long Island, N.Y., at 29.0%, according to the report.

JLL predicts that tech companies will also be taking a closer look at efficiency and the optimal use of space. Tech-focused office spaces are typically cheaper than traditional spaces in terms of physical construction. However, tech tenants tend to have higher standards for technology components and are more likely to pay more on equipment than traditional tenants, JLL said.

More tech companies are also now setting up shop in coworking centers, with the "third space" likely to be deemed the third pillar of sound real estate strategy, especially when taking into account other trends, JLL said. "Expect to see a blurring of lines between not only traditional coworking centers and the traditional office, but also hotel lobbies, coffee shops, retail banking centers and office common areas to serve as the third space informally as well," JLL added.

In addition to the recent shift toward downtown areas, tech companies are also likely to expand into the suburbs as millennials age, buy housing and ease their work-life balance, JLL said.

Lastly, JLL noted that the cost of living will be a top concern. In the most recent cycle, markets with the greatest growth in tech jobs have also experienced the largest increase in the cost of living, including California, New York City, Boston and Seattle. Tech companies will likely look at more affordable areas with high quality of life, JLL said.