Dan Benjamin recently concluded a six-month search for an Austin headquarters for 5by5, a startup he founded that pairs podcasters with advertisers. The ensemble of factors that traditionally influence commercial real estate transactions—price, location, amenities—faded into the background in Benjamin’s search. He wanted what many young technology firms want: an open office plan in a building with coolness credentials.

A report by the commercial real estate services firm Cassidy Turley showed that the lowest vacancy rates in the first quarter of 2014 were in markets with strong tech economies. Downtown San Francisco, downtown Austin and Manhattan’s Midtown South were among those with the lowest vacancy rates. In markets like these, the specific tastes of young tech companies that expect to grow rapidly is helping drive down vacancy and drive up rents.

“There are tenants moving out of Midtown’s Plaza District and into areas like Flatiron because of the cool factor,” said Jonathan Anatol, President of Prime Manhattan Realty, a commercial brokerage that serves most of Manhattan.

“Oddly enough,” Anatol said, “the rents in Midtown South are often equal to rents in the Plaza District where you can have space in a beautiful class-A building for $60 to $70 per square foot or even $55. Rents further downtown are about the same but with fewer amenities.”


In markets like the Bay Area, too, hipness often trumps price. Median asking rent in the office market in Santa Clara, in the heart of Silicon Valley, was $27 per Square Foot in the first quarter of this year, compared with about $53 per square foot in San Francisco proper, where an exodus from the Valley has made the city a satellite tech capital in recent years.

The vacancy rate in the downtown core of Austin, another tech mecca, saw a slight rise in vacancies in the first quarter but remains among the lowest in the country. The city’s population has grown by about 175,000 over the past ten years. The influx has been lured in part by jobs with Apple, Dell and 3M—all among the top 20 employers in town.

“Austin has a great tech and startup scene, amazing food, great music and culture, and it’s a great place to raise a family or be young and single,” said Benjamin. “You get a wide range of talent and experience.”

Open, collaborative work space has been favored by Internet start-ups for years, but even in a burgeoning tech center like Austin, it can be hard to find. “So many spaces are designed for corporate style working, with lots of separate offices,” said Benjamin. “We wanted a more open space with a layout that supported collaboration.”

Loft-like open layouts are part of what draws younger companies to Midtown South as well, Anatol said. “They like a floor plan that lets people move around and check in with each other,” he said. “Landlords that can offer that have an edge in the market in Manhattan right now.”

Miami’s downtown commercial vacancy was the lowest in the country in the first quarter. That’s impressive, but a steady average asking rent of around $24 per square foot throughout all of 2013 suggests Miami’s is an office market in recovery, not one in the process of a boom—tech or otherwise. The area’s office market is also highly decentralized and the Cassidy Turley numbers apply to the CDB only.

With that said, South Florida’s commercial markets should be an area to watch in the not-too-distant future. This month, a week-long conference called eMerge Americas lured hundreds of technology entrepreneurs to Miami. A prominent theme was leveraging the region’s reserves of Latin American capital to make it a tech hub for all of Latin America and the United States.

The proliferation of Internet start-ups—and the commercial real estate boom that’s accompanying it in many markets—isn’t guaranteed to last forever. Interest rates have remained low, making start-ups an attractive temporary home for venture capital, which allows for pickiness in selecting space, since cost ranks relatively low on the priority list when these firms look for office space.

That’s likely to change before long, said Jim Gaines, a Research Economist at Texas A&M University’s Real Estate Center. “A lot of people have gotten very used to these low rates,” Gaines said. “And it’s going to have a big impact on the market when they finally do creep back up in a meaningful way.”

The “dot com” bubble of the late nineties saw many of the same trends in the office market, with just 1.8% office vacancy throughout the city of San Francisco in the third quarter of 2000. As firms began failing and investment capital was withdrawn, that rate climbed to 23% over the six quarters that followed.

For now, the office sector is once again looking bullish where there are tech firms that need space, Anatol said. “Landlords seem to prefer to ride the wave of increased rents for which the tech companies are able to pay, rather than receive a lesser rent or renew at a lesser rent for a more traditional industry.”

Click here for an interactive timeline of the Dot-com bubble’s effect on the commercial real estate market in San Francisco.