Indianapolis’s Office Market Benefits From Strong Tech Job Growth and Low Costs, Ranking It Highly Among North American Tech Hubs

Indianapolis ranks in the top 15 markets in North America for high-tech job growth making it a highly active market fueled by Venture Capital’s heavy focus on funding the tech industry in the metro, according to CBRE’s annual Tech-30 report.

Indianapolis added 1,822 high-tech jobs through 2020 and 2021, a 6.6 increase that ranks 15th among all North America tech markets. Though net absorption shrunk by 0.7 percent since Q3 2020, office rent grew 5.2 percent over the past two years. Indianapolis’s Central Business District, the city’s top tech market, ranked as the 17th market in terms of office rent growth (0.7 percent) among other top submarkets.

Tech companies claimed nearly 80 percent of the $66.7 million in venture capital funding awarded to Indianapolis companies in the first half of the year. Indianapolis’s tech workforce of 29,445 people amounts to 12.4 percent of all office-using positions in the city.

“Indianapolis remains a great low-cost metro for emerging tech companies,” said Nick Svarczkopf, a Senior Vice President with CBRE in Indianapolis. “The success of tech incubators and our business-friendly environment continue to generate interest from businesses looking to break into the market.”

The 11th annual edition of CBRE’s Tech-30 report outlines how the tech industry’s share of U.S. office-leasing activity slipped in the first half of this year into a tie with two other major industries, underscoring that the tech industry’s often-unmatched impact on the office market has receded a bit this year.

Still, tech is tied with Finance & Insurance and with Professional & Business Services for the largest share of office leasing activity in this year’s first half at roughly 16 percent apiece. For tech, that’s a decrease from a leading 21 percent share in 2021. The last time tech’s share was lower than its current level was 2017, when it was 17 percent. Much of the industry’s reduced momentum this year can be attributed to a pullback in leasing this year by large tech companies.

The Tech-30 report measures the industry’s impact on office demand and rents in the 30 leading tech markets in the U.S. and Canada, as well as select tech-heavy submarkets. CBRE’s analysis found that, over the past two years, more than two thirds of the top 30 North American tech markets registered office-rent growth. Seven of those increased by double-digit percentages.

In that span, several tech markets registered positive net absorption, meaning companies in those markets moved into more space than they vacated. Six Tech-30 markets exceeded that threshold: Silicon Valley, Raleigh-Durham, Nashville, Vancouver, Austin and Salt Lake City. So did seven tech submarkets: Nashville’s Central Business District, Vancouver’s Broadway Corridor, Portland suburb Hillsboro, Raleigh-Durham’s RTP/I-40 Corridor, Oakland/East End in Pittsburgh, Salt Lake City’s South Valley, and Midtown Atlanta.

Meanwhile, U.S. tech job growth slowed to a 2.1 percent year-over-year gain in this year’s first half from a 4.5 percent pace in last year’s second half. Hiring momentum persists in many markets, including a dozen top U.S. and Canadian tech hubs that registered double-digit percentage gains in tech employment in 2020 and 2021, led by Vancouver, Toronto, Austin, Seattle and Montreal.

“Even amid challenges of the past two years, the tech industry continues to add jobs and lease office space at an unsurpassed pace,” said Colin Yasukochi, Executive Director of CBRE’s Tech Insights Center. “Since early 2020, tech has accounted for roughly one of every three office-using jobs created in the U.S. There is potential for pent-up demand to emerge once companies set their long-term hybrid work practices and economic growth picks up. Venture capital funding is on track for the second highest annual total on record after last year’s peak.”

Sublease Space Rises Nationally

Office space available for sublease in the Tech-30 markets increased 4.9 percent to 142 million sq. ft. in this year’s second quarter from a year earlier, the highest total since CBRE started tracking the figures in 2012. Tech companies account for 20 percent of that total. Leases on nearly half of that tech-industry sublease space are scheduled to expire by 2025, reverting to the building owners.

Submarkets Outperform

Leading tech submarkets, which often are located near universities, often feature rising rents, scant vacancy and high-quality office space. CBRE has found that office lease rates in leading tech submarkets carry a 10.5 percent premium, on average, to rates for their cities as a whole as of this year’s second quarter. Those with the largest premiums are East Cambridge in Boston (87 percent), Santa Monica near Los Angeles (59 percent), Philadelphia’s University City (56 percent) and Palo Alto in Silicon Valley (50 percent). Tech submarkets also tend to generate some of the strongest rent gains in their cities.

Similarly, several tech submarkets have notched double-digit percentage increases in office rent since 2020.

Top Tech-30 Submarkets For Office-Rent Gains

*Q2 2022 vs. Q2 2020

CBRE’s report also identifies markets well positioned for resiliency and continued growth based on tech job growth and momentum, office market performance and demand recovery. Those include Vancouver, Silicon Valley, San Diego, Boston and Raleigh-Durham.

To read the Tech-30 report, click here.