- The technology sector has added hundreds of thousands of US jobs over the past several years.
- Many of these jobs are being added outside of Silicon Valley, in places like Seattle, Atlanta, and Austin.
- Fundrise investments are benefiting from exposure to these markets, as growth in the tech sector boosts rents and real estate performance.
The upside to rising rents in tech metros
In recent years, the staggering growth of technology companies, from small startups to behemoths like Amazon and Google, has added hundreds of thousands of US jobs, bolstering the performance of real estate in a number of markets.
When you think about tech, you think about Silicon Valley for good reason. Thanks largely to the concentration of tech firms in Palo Alto, San Jose, and San Francisco, California is home to more tech employees than any other state. But did you know that the state with the highest concentration of tech workers in the country is Massachusetts, followed by Virginia in close second? Have you heard that the District of Columbia boasts the highest proportion of women working in tech?
The point is, there are plenty of tech markets across the country, and many with more potential upside for real estate investors than just the Bay Area. While they may not have been center stage in “The Social Network,” these markets could be intriguing to savvy real estate investors for a number of reasons. In particular, tech industry developments in Seattle, Atlanta, and Austin have caught our eye.
Seattle leads nation for rent growth
Tech firms are flocking to Seattle in droves, thanks to the area’s foundations in cloud computing, software development, and, increasingly, artificial intelligence. Airbnb, Dropbox, Uber, and Snapchat are just a few of the companies that have set up shop there over the past several years. Apple, which employs around 1,200 workers in the state, is expanding its Seattle presence, and it isn’t the only tech stalwart growing its footprint in the area. Both Facebook and Google are expanding into new offices in the South Lake Union neighborhood. Meanwhile, Amazon estimates that it may add 3.5 million square feet in the city by 2022—enough to accommodate around 14,000 additional workers.
The area’s growing tech work force has generated robust housing demand, but supply has failed to keep pace. As a result, in November 2016 Seattle recorded a 10.4% year-over-year increase in home prices according to Standard & Poor’s CoreLogic Case-Shiller index—the largest among the 20 cities the index tracks. Rent growth in the metro area hasn’t been shabby either. According to Zillow, Seattle saw the strongest year-over-year rent gains in the country as of August 2016.
Atlanta delivers impressive tech job growth
Georgia, “The Empire State of the South”, is living up to its nickname. Atlanta added more jobs in 2016 than any other city in the country save New York, Dallas, and Los Angeles, thanks in no small part to gains in the city’s tech sector. Firms like Orion, Futurewave Systems, MacStadium, and Company.com account for more than half of the ten fastest-growing private companies in the city.
At the same time, Atlanta’s multifamily market has seen rising rents and healthy vacancy rates, despite robust new development. According to data provider Axiometrics, Atlanta recorded rent growth of 4.6% over the year ending in November 2016—nearly double the national rate—with growth as high as 9.1% in the I-20 West and Bartow County submarkets.
Tech growth drives a tight residential market in Silicon Hills
The Lone Star State’s version of Silicon Valley has been feeling the love this cycle, as tech firms continue to be drawn to the area’s vibrant cultural scene, relatively low cost of living, and large labor pool. Austin’s high-tech employment increased by more than 50% from 2010-15—behind only the Bay Area, Baltimore, and Phoenix. Downtown Austin, in particular, has been thriving. The area recently welcomed tenants like Atlassian, Dropbox, and Galvanize, and leased 200,000 SF of redeveloped space to Google. However, the centerpiece of Austin’s tech story is Apple. The company employs more than 6,000 people in the city, and the 1.1 million square foot campus it recently opened in north Austin is its largest in the country.
Austin’s strong economy is supporting a tight residential market. Axiometrics is projecting that strong job growth will support rent gains of 11% from 2017-20. Austin proper isn’t the only area that’s benefiting from the metro’s strong performance—its close-in suburbs are reaping gains as well.
The bottom line
The tech industry has added hundreds of thousands of jobs over the past several years, increasing residential demand in many of the nation’s core metros. While lofty pricing and tempering rents have steered Fundrise away from Silicon Valley, rapid growth in flourishing tech hubs like Seattle and Austin—along with nascent up-and-comers like Atlanta—have caught our eye, and are bolstering our investors’ returns. For those looking for ways to deploy their savings, it might be worth considering investments poised to benefit from the tech industry’s expansion.