In the past year, technology firms accounted for more than 4 million square feet of occupancy in the Chicago CBD. With new tech job creation happening every year, the city is fast becoming a hub for West Coast firms seeking cheaper space.
According to CBRE’s annual Tech-30 report—which measures the technology industry’s impact on office rents in the 30 leading markets in the U.S. and Canada—the Chicago tech market added 4,582 jobs in 2017 and 2018. Technology firms currently occupy over 17.7 million square feet in downtown Chicago.
“The Chicago tech community continues to expand at a steady rate,” said Brad Serot, vice chairman and member of CBRE’s tech and media practice group. “The city’s highly skilled workforce has attracted some of the world’s largest tech firms as they look to tap into the market’s immense talent at a much more affordable cost than coastal alternatives.”
From 2017 to 2018, tech employment grew by 6.7 percent, or 39 percent of all new office workers added in this time period. This trend has only continued in 2019. In July, Belgian sales enablement platform Showpad leased 68,391 square feet at 1 N. State Street to accommodate job growth, after moving into the building the previous December.
Earlier this year, tech giant Amazon leased another 70,000 square feet at the Franklin Center, 227 W. Monroe Street, to accommodate the addition of 400 cloud computing, advertising and business development jobs. The biggest office deal so far this year—tech or otherwise—was Uber’s 463,000-square-foot lease at the redeveloping Old Post Office; the firm plans to hire 2,000 people over the next three years to work in their freight division.
Since 2013, Bay Area-based tech firms have expanded beyond their base, leasing 25 million square feet in 10 other markets. This includes 2 million square feet in Chicago, which beat out other contenders like Boston, Denver and Portland, but less than half of what was allocated to markets like New York, Seattle and Southern California.
But Chicago’s strong finance sector makes it an ideal market for young firms too. According to CBRE, the city launches an average of 370 startups annually an drew $1.9 billion in venture capital funding last year alone. Another factor in the city’s favor is the relative cost of high-tech labor. A software engineer can command $98,626 in Chicago, according to CBRE. While there were eight other U.S. markets in the report where that salary was lower, it is still far below the $136,212 in San Francisco.
Though it settled in toward the bottom of CBRE’s Tech-30 report at 22nd place, Chicago is still a top market nationally for tech firms, especially as a hub for engineering and computer science talent. In fact, strong demand and a dearth of “tech-preferred” inventory are hiking up office rents.
The Chicago office market had a 14.7 percent vacancy rate as of the second quarter of 2019, with average asking rents of $31.51 per square foot. In the city’s tech hub, River North, rents were $41.56—a 32 percent rent premium from the overall market—and vacancy was much tighter at 8.2 percent.
“The North American tech industry has diversified its economic base as it has grown, expanding its presence in many Tech-30 markets,” said Colin Yasukochi, executive director for research for CBRE’s tech and media practice and co-author of the report. “Meanwhile, large tech companies have been an ongoing source of demand; The 10 most active tech companies leasing office space since 2013 account for 27 percent of overall tech-industry leasing.”
In Chicago, CBRE’s analysis found that tech companies accounted for 21 percent of major office-leasing activity in the first half of this year, up from 11 percent when CBRE began tracking the figures in 2011. The Midwest market is poised to remain a top destination for expansion from San Francisco firms.