Tech Giants Set up Shop in Secondary Markets

When it comes to what separates a primary tech market from a secondary tech market, two words come to mind: talent concentration.

As primary tech markets such as Silicon Valley, Boston and New York continue to thrive, what are the secondary markets doing to attract some of that talent to help the industry grow in their own backyard?

It’s pretty much about access to capital and job growth, says Robert Sureck, senior market manager, Silicon Valley Bank. This, in turn, benefits the commercial real estate industry as building owners find ways to lure tech companies to fill their properties.

“With access to capital and job growth, companies are able to expand their space,” Sureck says.

Sureck used the example of a startup. It begins with a couple of college buddies in their parent’s garage. They raise money to get going, max out their credit cards. Then they go and raise seed money and then move into their space. It is super dense. Maybe people stacked on top of each other. Then the focus is on the capital investment side of things.

How much are we talking? In the three primary tech markets annually, there is about $30 billion in capital investment in Silicon Valley and $18 billion in Boston and New York. The secondary markets pale in comparison.

But this could also be a benefit, as some tech titans are planting outposts in secondary markets.

“What you will see is some of the secondary markets becoming fairly viable,” Sureck says. “Southern California and the Midwest become vibrant markets. Especially Southern Cal with consumer digital media.”

The lack of venture capital is keeping secondary markets from breaking through as well, the panelists agreed. This includes metro regions such as Phoenix, Portland and Dallas.

However, in both primary and secondary markets, tech labor continues to influence a company’s need for space. What the market is seeing is companies such as Google and Facebook looking to the second tier regions to open offices.

“It’s driving a lot of opportunities in the market for expansion,” says Rodney Richerson, president, Western region, KBS Realty Advisors.

And there are new secondary tech markets making strides, Sureck says. This includes Cincinnati, Ohio; Charlotte, North Carolina; Atlanta, Georgia; Pittsburgh, Pennsylvania; and Madison, Wisconsin. It also helps that there is a new focus on the STEM markets, Richerson says. An ever-growing medical market is good for everyone.

But when it comes to location decisions, it’s all about the city. Moderator Kate Crowley, senior manager, Baker Tilly Virchow Krause, says incentives can play a key role.

“Frankly, you have to know where you are in the competition,” Crowley says. “You’re the underdog. You have to make an incentive offer. You have to beat it [another offer] by a mile. For another location to be a frontrunner, there has to be a really big package. It can be done with the right factors in place.”

Added Sureck: “Investors are followers. It’s rare that Google comes into the market and the market happens. The market is there and Google wants to be there.”

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