Peninsula Gets Low Ranking in JLL’s Survey of Attractive Tech Office Markets

San Mateo, Peninsula real estate, Cassidy Turley, Mike Moran, Avison Young, Foster City, Todd Campbell, Kidder Mathews, Marty Church, Bay Area news

San Mateo, Peninsula real estate, Cassidy Turley, Mike Moran, Avison Young, Foster City, Todd Campbell, Kidder Mathews, Marty Church, Bay Area news
By Adam Steinhauer

The Peninsula may be home to technology companies such as Visa, Oracle and GoPro, but if you’re currently looking to invest in office space for technology industry tenants, the area may now be one of the least attractive of the U.S.’s major technology hubs.

[contextly_sidebar id=”J9kDx8HHF8vYAlLyaffuTvzzAnux2zK5″]That, at least, is the conclusion that real estate management firm JLL draws in its annual Technology Office Outlook report. Out of 37 regions it analyzed, the firm ranked in the San Francisco Peninsula the 35th most attractive, behind other technology centers as Nashville, Tenn., Oakland and Las Vegas.

To be sure, JLL’s report said that all of the 37 regions it studied are “viable” tech markets.

Of those 37, however, the San Francisco Peninsula ranked only as a more attractive market than Detroit or Baltimore.

“As for the bottom five markets in this year’s ranking, the biggest surprise may be the San Francisco Peninsula’s position toward the bottom,” the report stated. “While this market is squarely planted in the middle of the tech epicenter, there are factors that create challenges for growing companies, such as the cost of living, the cost of real estate and less favorable demographic conditions.”

The Peninsula’s cost of living and cost of real estate are, of course, comparable to the San Francisco market, which ranked as the most attractive tech office market. In fact, Menlo Park office space, with an average asking rent of $73.44 per square foot in the third quarter, was less expensive than space in the City’s Mission Bay and China Basin neighborhoods, which averaged $81.50. (Those statistics exclude Menlo Park’s Sand Hill Road, where much of the venture capital industry is based.)

The Peninsula ranked far lower, however, in factors that JLL said contribute to “startup opportunity.” Those include venture capital flows, the size of the populations of millennial generation workers and workforce education level. San Francisco companies, for example, received some $12.6 billion in venture capital funding in the year that ended in the second quarter of 2015, while Peninsula-based companies received only $2.08 billion. And while 52.4 percent of San Francisco’s population has at least a bachelor’s degree, only 38 percent of Peninsula residents are college educated.

Such factors were cited by JLL as it ranked other regions far from Northern California as potentially more promising technology office market investments than either the San Francisco Peninsula or even Silicon Valley.

The Valley only ranked 19th out of the 37 markets surveyed—also behind Nashville, Oakland and Las Vegas, as well as Atlanta and just ahead of Los Angeles.

A key takeaway from JLL’s report is that lesser technology hubs are growing more competitive as the Bay Area demands some of the most expensive office space rents in the nation.

“While the obvious markets remain at the top of the ranks for technology leasing activity, smaller markets are emerging to capture demand,” the report states. “Today more and more startup founders consider the viability of their hometown as a business location instead of relocating to San Francisco or Silicon Valley. With relatively low real estate and employee costs in markets like Atlanta, Dallas and Raleigh-Durham (where average rents are in the low $20s versus the mid $50 average one can find in the Bay Area and New York City), secondary and tertiary markets are looking much more attractive.”

To be sure, JLL’s statistics show that Silicon Valley still remains the technology hub by many measures: Downtown Palo Alto, at $98.68 per square foot, and Downtown Mountain View, at $87.53, were the two most expensive submarkets in the survey. And the 25 large tech companies headquartered in Silicon Valley have a combined market capitalization of $2.15 trillion, more than five times the valuation of the big tech companies headquartered on the Mid-Peninsula, the second largest market by that measure.

But as an office property investment opportunity, Silicon Valley ranked far below Washington, DC, which JLL ranked as the second-most attractive market after San Francisco. The average wage in nation’s capital was only $105,858 as of 2014, a little less than half the average wage in Silicon Valley. And 52.4 percent of Washington’s workforce had at least a bachelor’s degree, compared to 46.5 percent in the technology’s capital workforce.

New York City ranked third. Even there, the average wage was only $135,339 in 2014, compared to Silicon Valley’s average of $211,906.

Meanwhile, Oakland and the East Bay region ranked 11th out of the 37 markets. JLL said that Uber’s recent purchase of Oakland’s Uptown Station property “will create more traction in tech-related activity.” At the same time, startups in the East Bay are facing rising rents.

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