WHY THE NEXT SILICON VALLEY WON’T BE IN CALIFORNA

By July 31, 2017Blog

While it may seem ironic that high-tech companies that work in the virtual space of the internet would drive demand for bricks-and-mortar office space, that’s exactly what’s been happening for quite some time now.

Silicon Valley near San Francisco and Silicon Beach in the Westside region of Los Angeles are two areas that immediately come to mind, with the demand for both Class A office space and even functionally obsolete industrial and warehouse space that can be converted to creative office space greatly exceeding supply.

The reason for the surging need for office space from the technology sector is because high-tech employers are beginning to locate in the markets that have the highest concentrations of highly skilled, well educated workers rather than trying to convince employees to relocate.

Technology-driven companies, especially business incubators, accelerators, and those in the start-up phases, are conscious of the bottom line.  But due to the extremely low unemployment rate for tech workers and the competition from companies not in the high-tech industry, technology businesses are willingly paying a premium for office space in order to locate where the largest high-tech labor pools are.

Not only are technology companies willing to pay a higher rent to be where the talented workers are, but when they lease space, they need lots of it.  According to a recent report from CBRE, the average high-tech employer with a staff of 500 requires around 75,000 square feet of office space.

With the asking rents for office space in the traditional high-tech corridors of Silicon Valley and Silicon Beach soaring, and with leasable space of any type becoming increasingly difficult to locate, employers are moving into markets that have available space while at the same time providing access to a deep high-tech labor pool.

High-tech companies based in the United States have begun to cross the Canadian border to cities such as Vancouver, Toronto and Calgary where they are able to leverage the relatively strong value of the U.S. dollar against the Canadian loonie.  At the current exchange rate Class A office space in Canadian markets with high-tech talent costs less than half of what similar space would rent for in San Francisco.

Calgary, Alberta’s deep high-tech labor pool and availability of prime commercial office space is attracting attention from U.S. technology companies.  The city has been aggressively touting its workforce educated in the fields of mathematics, technology, engineering and science to industry currently located in Silicon Valley.

In a recent interview with CBC News, Mary Moran, president and CEO of Calgary Economic Development, noted that Calgary has one of  the highest concentrations of skilled high-tech labor in Canada, precisely what Silicon Valley is needs and wants.

Moran explained, “When you think about lower cost or more economical office space, that’s a really important factor. For them, it would be lower cost talent because of the exchange rate, not to mention that Calgary having corporate head offices is a really great asset when we’re pitching companies down here. They’re not only looking for talent, they’re looking for clients.”

Existing industry in Calgary centers around logistics, energy, and agriculture, providing the perfect opportunity for high-tech companies building out the ‘industrial internet of things’ to provide an overlay allowing business to be more productive and efficient, to develop start-to-finish automation processes, and to improve overall asset management.

Last year TwinRock Partners opened our Rock Fund VII to target distressed Canadian real estate in Calgary to take advantage of opportunities just like these.