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CBRE RESEARCH
// TECH BOOK CHICAGO //
2016
//Table of Contents01. Executive Summary
02. Tech Footprint
Tech Submarket Snapshots: River North
Tech Submarket Snapshots: West Loop
Tech Submarket Snapshots: Central Loop
Development Pipeline: Fulton Market
Development Pipeline: Goose Island
03. Office Market
04. Tech Talent
05. Tech Industry Indicators
06. Industry Outlook
TECHBOOK CHICAGO 2016 EXECUTIVE SUMMARY// 4
TECH INDUSTRY DEFINITION
INDUSTRY CATEGORIES INCLUDE:
FINTECH
E-COMMERCE
COMPUTER SYSTEM, DESIGN AND RELATED SERVICES
TELECOMMUNICATIONS
ADVERTISING/PR/MEDIA/DIGITAL
COMPUTER/ELECTRONIC PRODUCTS, ELECTRICAL EQUIPMENT AND COMPONENT MANUFACTURERS
SOFTWARE
WEB SEARCH PORTALS
Executive Summary
01
4 // © 2016 CBRE, INC.
TECHBOOK CHICAGO 2016 EXECUTIVE SUMMARY// 5
TECH DEMAND FOR SPACE RISING
6.8M SFTotal space leased by tech tenants since 2011.
Most active year was 2015 at 23.8% of overall leasing activity in the CBD
GROWING SPACE REQUIREMENTS
50-100K SFTech space requirements have gotten much larger,
as tenants in the market between 50,000 and 100,000 sq. ft. more than doubled,
up to 37% from 15% in 2014
OFFICE MARKETFulton Market and Goose Island office submarkets developing around
major tech users that are transforming the landscape
FUNDAMENTAL DRIVER IN LOCAL ECONOMY
22.6%Growth in Tech sector
employment since 2010
LOCAL FUNDING ALLOWING COMPANIES TO STAY AND
GROW IN CHICAGO
$1.7 BInvested in Chicago
startups in 2015
VIABLE OPTION FOR INVESTORS AND CAPITAL FUNDS
17%Venture Capital exits have increased by 17% Y-O-Y
INDICATORS
TECH ECOSYSTEM CONTINUES TO GROW IN THE URBAN CORE
11.5M SFOccupied by 428 tech firms
in the Chicago CBD
LARGEST AMOUNT OF TECH OCCUPIED SPACE
4.0M SFOccupied by tech
in West Loop
GREATEST IMPACT OF TECH ON ANY SUBMARKET, ALBEIT A SMALL OFFICE INVENTORY
45.2%Concentration of tech in Fulton
Market/Far West Loop
TECH FOOTPRINT
TECH FOOTPRINT
6 // © 2016 CBRE, INC.
BY THE NUMBERS
11.5 MSF OCCUPIED BY 428 FIRMS
10.6% OF TOTAL OCCUPIED SPACE IN CHICAGO CBD
26.8% CONCENTRATION IN RIVER NORTH SUBMARKET
IMPLICATIONS Chicago’s tech ecosystem continues to grow as investors fund acquisitions and IPO’s of the city’s fastest-growing and most profitable companies. However, as tech tenants continue to expand within the CBD and beyond, many worry of the possibility of a looming tech bubble, driven by over-valuations for start-up firms.
Tech Footprint
02
6 // © 2016 CBRE, INC.
TECH FOOTPRINT
TECHBOOK CHICAGO 2016 TECH FOOTPRINT // 7
Chicago’s tech ecosystem continues to flourish, creating a host of opportunities for landlords and tenants. In total, more than 140 Chicagoland tech companies received funding in 2015, collectively raising more than $1.7 billion in equity and debt financing. Venture capital funding for digital startups increased 8.9% over 2014 levels and startup exits, through acquisition or IPO, jumped to a grand total of $8.2 billion, marking the city’s strongest year for tech companies. This momentum has contributed to strong demand for office space, with 1.7 million sq. ft. leased in 2015, representing 23.8% of total leasing activity.
Growing interest from international and local venture capital firms has sparked demand from tech tenants seeking space in submarkets all over the Chicago CBD. Tech tenants currently occupy 11.5 million sq. ft.1, representing 10.6% of the total CBD occupied sq. ft. While tech tenants represent a relatively low percentage of the overall market, their share has grown at a larger rate than any other segment in recent years. Since 2011, tech companies have accounted for an annual average of 15.0% of total leasing activity. From 2013 to 2015, tech leasing remained in the top three industries, along with financial and legal services.
While River North remains a top submarket for this industry – having a 26.8% tech footprint – the largest tech occupancy can be seen in the newly designated Fulton Market/Far West Loop Submarket, which grew rapidly as tech tenants expanded beyond startup offices in adjacent areas. Tech tenants in this growing submarket currently make up 45.2% of the local inventory, however, this is partly due to the fact that Fulton Market has only 2.2 million sq. ft. of office product, compared to the 11.3 million sq. ft. and 44.2 million sq. ft. in the River North and West Loop submarkets, respectively.
In the most popular submarkets of River North and West Loop, vacancies plummeted and rents soared in response to growing demand. Rising demand for creative office space in vintage buildings favored by tech firms has led to tightened supply in River North, where the vacancy rate stood at 8.3% overall in Q4 2015 and at 8.0% for the Class C lofted buildings favored by tech tenants. The area has also seen rents rise by 5.7% year-over-year. Similarly, West Loop office properties have seen average asking rents go from $37.46 per sq. ft. to $39.61 per sq. ft. annually, an increase of 5.7%. Due to this, tech users have been forced to look elsewhere for new or expanding space requirements. As an example, after raising over $650 million in funding, Avant, an online marketplace for consumer loans, plans to hire an additional 600 employees over the course of 2016. As a result, it expanded its footprint by 51.6% at 222 N LaSalle St.
As tech tenants demand more space, developers have responded by constructing new product in growing submarkets such as Fulton Market, which delivered over 600,000 sq. ft. in 2015 with another estimated 3.0 million either under construction or planned over the next three years.
FIGURE 1:
TECH FOOTPRINT BY INDUSTRY SUBSECTOR
35%SOFTWARE
18%AGENCY
17%B2B WEB
15%CONSUMER
WEB
15%ECOMMERCE
Sector breakdown of the top 100 companies (by employee)Source: Built In Chicago, 2015.
The growing space requirements of Chicago’s tech firms is due in part to their growing workforce. Established local firms such as Groupon and GoGo, and national companies like Yelp and Salesforce, have significantly expanded in the CBD, helping to foster growth in the tech ecosystem. These companies draw talent from the city’s world-class universities and well-rounded labor pool. Since 2010, employment in the Chicago tech sector has grown by 22.6%, while average wages have increased by 5.1%. As can be seen in Figure 1, the majority of the city’s more than 3,200 digital firms are concentrated in the software sector, representing 35% of the top 100 tech companies. As tech tenants cluster in popular submarkets such as River North and the West Loop, this concentration of tech talent has fostered a creative, forward-thinking environment in which to do business. It should be noted, these benefits come with associated risks. Although Chicago’s economy is typically associated with a high degree of business diversity, submarkets with the highest concentration of tech tenants may experience volatility in market fundamentals in the event of a downturn in the tech industry.
1 This does not account for shared workspace offices such as WeWork or Regus, which host numerous tech tenants on any given week in the CBD – an estimation ranging from 500,000-700,000 sq. ft. of temporary/shared occupied space.
TECH FOOTPRINT
8 // © 2016 CBRE, INC.
Those submarkets with a greater diversity of occupiers, such as the Central Loop, will be better able to endure the softening of any one industry.
Chicago’s tech scene is growing and drawing investors that are injecting larger amounts of capital into local startups each year. Before 2015, only one company, Mu Sigma, could be categorized as a unicorn – a company with a valuation of one billion dollars or more – but as of the close of 2015, the city has produced three additional firms that have achieved this status: Uptake, ExteNet Systems and Avant Credit, valued at $1 billion, $1.4 billion and $2 billion respectively, according to Built In Chicago. As investor’s interest in local firms grow, many worry if the current levels of tech investment are sustainable. As the Wall Street Journal succinctly puts it in an interview with an East Coast hedge fund manager, “pricey stock valuations, record high levels of margin debt and a near record number of money-losing companies going public
have made some investors nervous that the market has rallied far beyond what the fundamentals dictate.” While signs of caution can be found all around, others point out that although company valuations may be high, there is evidence that if a crash is on the horizon it may not be as great in magnitude to what the economy experienced in 2000. Nationally, funding levels for tech firms have been rising steadily since 2012, but still only stand at 40% of their 2000 levels (the height of the dot-com bubble). Additionally, internet usage has quadrupled and since 2000 and the U.S. economy has finally regained all of the jobs lost during the Great Recession, indicating a stronger market for consumer and enterprise related tech services compared with the tech bubble of the early 2000’s. Despite these concerns, Chicago’s market fundamentals remain strong, the pipeline of talent continues to expand and investors continue to show interest in Chicago firms – Chicago’s tech scene appears poised for future growth.
0
$5
$10
$15
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$25
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151413121110090807060504030201009998979695
DEAL
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BILL
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NUMB
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500
1,000
1,500
2,000
2,500
INVESTMENT DEALS NUMBER OF DEALS
FIGURE 2:
HISTORICAL U.S. VENTURE CAPITAL INVESTMENT
Source: PwC/NVCA MoneyTree™ Report, Q4 2015: Thomson Reuters.
TECH FOOTPRINT
TECHBOOK CHICAGO 2016 TECH FOOTPRINT // 9
TECH FOOTPRINT
Jackson
Adams
Monroe
Wacker
Ohio
Grand
Ontario
Superior
Huron
Erie
Illinois
Hubbard
Kinzie
Chicago
Pearson
Randolph
Washington
Madison
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Chicago
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45.2%FULTON MARKET/FAR WEST LOOP
6.5%CENTRAL LOOP
8.4%NORTH
MICHIGAN
26.8%RIVER NORTH
9.5%EAST LOOP
9.4%WEST LOOP
FIGURE 4:
TOTAL TECH OCCUPIED SQ. FT. BY SUBMARKET
Fulton Market/Far West Loop has the highest concentration of tech tenants at 45.2%. It also has the lowest inventory, which is why it ranks the lowest by total sq. ft. occupied
0
10
20
30
40
50
FULTON MARKET/FAR WEST LOOP
NORTH MICHIGAN AVE.
RIVER NORTHEAST LOOPCENTRAL LOOPWEST LOOP
SQ. F
T. ( M
ILLI
ONS)
NON-TECH SF TECH SF
Source: CBRE Research, Q4 2015.
FIGURE 3:
TECH FOOTPRINT AND CONCENTRATION BY SUBMARKET
10.6%TECH CONCENTRATION
11,465,830TOTAL CBD
Source: CBRE Research, Q4 2015.
TECH FOOTPRINT
10 // © 2016 CBRE, INC.
SPOTLIGHT: GROUPONGroupon, headquartered at 600 W. Chicago Ave. occupies 375,807 sq. ft. The global e-commerce leader renewed its lease and expanded its footprint by 52.9% in July 2015. The non-traditional office building, owned by Equity Commonwealth, was originally built in 1908 as the Montgomery Ward mail-order warehouse. Tech firms are drawn to this type of building and 600 West Chicago has attracted other local companies such as Uptake and Lightbank. Groupon, which was launched in Chicago eight years ago, currently employs more than 2,100 people at the eight-story building in River North.
SPOTLIGHT: YELPYelp opened its first Chicago office at 222 Merchandise Mart Plaza in early 2015, joining a host of other tech tenants and the city’s first and largest tech incubator, 1871. The online city guide and business review website, currently takes up 132,044 sq. ft. expanding from its initial lease of 50,000 sq. ft. Formerly known for its expansive interior design showrooms the Merchandise Mart has become Chicago’s epicenter for tech innovation and entrepreneurship. Vornado Realty Trust, the building’s owner, describes the Mart is the nation’s second-largest office building, falling behind the Pentagon. Yelp plans to hire 300 new employees within the next 18 months.
TECH SUBMARKET SNAPSHOTS
River NorthRiver North has been long favored by tech companies for its amenity-rich environment, creative building stock and close connectivity to greater Chicago via public transit. Tech tenants occupy approximately 26.8% of River North office space. In contrast, tech tenants within the traditional Central Loop office market occupy only 6.5%. In 2015, the submarket saw significant leasing activity by tech tenants with 37.9% of all tech deals being done in River North, up from 17.2% in 2014. Meanwhile, rents have increased every quarter since Q4 2014 and direct vacancy has hovered below 10%.
Van Buren
Jackson
Adams
Monroe
Randolph
Washington
Madison
Fulton
Carroll
Kinzie
Hubbard
Grand
Wac
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Fran
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Cana
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Clin
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Jeff
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Lake
Kinzie
Illinois
Grand
Ohio
Ontario
Erie
Hubbard
Huron
Superior
Chicago
Pearson
Clar
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Dear
born
LaSa
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Wel
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Orle
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Larr
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Huds
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Wab
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Randolph
Washington
Madison
Chicago River
Monroe
Adams
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Van Buren
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Chestnut
Delaware
Walton
Oak
Wel
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Dear
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Stat
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Wab
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Fran
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Stat
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Kennedy
FEEDER RAMP
Eisenhower
ogilviestation
unionstation
10 // © 2016 CBRE, INC.
TECH FOOTPRINT
TECHBOOK CHICAGO 2016 TECH FOOTPRINT // 11
Van Buren
Jackson
Adams
Monroe
Randolph
Washington
Madison
Fulton
Carroll
Kinzie
Hubbard
Grand
Wac
ker
Fran
klin
Cana
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Clin
ton
Jeff
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DesP
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Lake
Kinzie
Illinois
Grand
Ohio
Ontario
Erie
Hubbard
Huron
Superior
Chicago
Pearson
Clar
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Dear
born
LaSa
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Wel
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Orle
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Larr
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Huds
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Sedg
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King
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Wab
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Wacker
Randolph
Washington
Madison
Chicago River
Monroe
Adams
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Van Buren
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Colu
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Lake
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Fair
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McC
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Lake Shore Drive
Chestnut
Delaware
Walton
Oak
Wel
ls
Lake
Dear
born
Stat
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Wab
ash
Fran
klin
Stat
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Kennedy
FEEDER RAMP
Eisenhower
ogilviestation
unionstation
RIVER NORTH TECH FOOTPRINT TAKEAWAYS• River North supply is very limited, with the direct
vacancy at 8.3% as of Q4 2015, compared to 11.4% for the CBD. Class A direct vacancy was at 3.7%, and Class B at 10.1%, compared to 11.1% and 11.8% for the CBD, respectively.
• Lack of available space coupled with no new construction has driven up the rents in River North – average asking rates have increased by 5.7% year-over-year.
• 50% of the tech tenants that reside within River North are located at 222 Merchandise Mart Plaza.
• 26% of the River North tech tenants call 600 W Chicago home.
TECH COMPANY CONCENTRATIONS
250,000+ SF
100,000–250,000 SF
50,000–100,000 SF
25,000–50,000 SF
10,000–25,000 SF
< 10,000 SF
TECH FOOTPRINT
12 // © 2016 CBRE, INC.
SPOTLIGHT: GOGONearly two years after announcing one of the largest suburban-to-city relocations in recent history, GoGo Inc. officially settled into its new headquarters at 111 N. Canal St. in June 2015 – joining a host of other tech tenants such as StubHub, Fieldglass and Twitter. The company, which offers in-flight wireless services to airline passengers, was previously based in Itasca, IL a western suburb near O’Hare Airport. The move is a consolidation of several suburban locations to 232,000 sq. ft. along the top four floors of the 98-year-old renovated warehouse managed and developed by Sterling Bay. The move has brought over 500 employees to the Chicago CBD.
TECH SUBMARKET SNAPSHOTS
West LoopAs startups grow out of their spaces in River North, vintage office buildings in the West Loop have benefited greatly from this movement, providing the same flexible space advantages as River North, but with larger floor plates essential for later stage growing tech firms. Tech tenants currently occupy 9.4% of the total space in the West Loop, totaling nearly 4.0 million sq. ft. Out of the 47 tenants occupying over 50,000 sq. ft. in the CBD, the West Loop is home to a total of 19 of these large tenants, comprising 60.6% of the tech footprint in the submarket. This includes large tech firms such as Gogo, LinkedIn and IBM.
12 // © 2016 CBRE, INC.
TECH FOOTPRINT
TECHBOOK CHICAGO 2016 TECH FOOTPRINT // 13
Van Buren
Jackson
Adams
Monroe
Randolph
Washington
Madison
Fulton
Carroll
Kinzie
Hubbard
Grand
Wac
ker
Fran
klin
Cana
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Clin
ton
Jeff
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DesP
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Lake
Kinzie
Illinois
Grand
Ohio
Ontario
Erie
Hubbard
Huron
Superior
Chicago
Pearson
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Dear
born
LaSa
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Wel
ls
Orle
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Larr
abee
Huds
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Sedg
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King
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Wab
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Randolph
Washington
Madison
Chicago River
Monroe
Adams
Jackson
Van Buren
LaSa
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Clar
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Mic
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Colu
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Lake
Shor
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Rush
Mic
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St C
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Fair
bank
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McC
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Lake Shore Drive
Chestnut
Delaware
Walton
Oak
Wel
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Lake
Dear
born
Stat
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Wab
ash
Fran
klin
Stat
e
Kennedy
FEEDER RAMP
Eisenhower
ogilviestation
unionstation
WEST LOOP TECH FOOTPRINT TAKEAWAYS• The West Loop is the largest submarket, with
44,173,677 sq. ft. of rentable building area, with another 3.1 million sq. ft. being delivered by 2018.
• Overall average asking rents have increased for the past 14 consecutive quarters, rising by 14.9% since Q2 2015.
• 16% of the tech tenants residing in the West Loop occupy space at 111 N Canal, a Class B building that is 97% occupied – the majority of which is made up of tech tenants.
• Tech firms are attracted to 111 N Canal, a concrete loft style building that offers 58,000-sq. ft. floor plates, an ideal location with proximity to public transit, and an array of amenities including a game/conference facility and roof deck, full service gym, and secure bike room.
TECH COMPANY CONCENTRATIONS
250,000+ SF
100,000–250,000 SF
50,000–100,000 SF
25,000–50,000 SF
10,000–25,000 SF
< 10,000 SF
TECH FOOTPRINT
14 // © 2016 CBRE, INC.
SPOTLIGHT: AVANTLocated at 222 N. LaSalle, Avant, an online personal lender, raised a total of $664 million in debt and equity financing in 2015 — the largest funding ever secured for a Chicago firm. The financial tech company expanded from its previous 30,000 sq. ft. headquarters at at 640 N. LaSalle in River North to 120,000 sq. ft. in the Central Loop earlier this year. The firm has announced plans to hire an additional 600 employees by the close of 2016.
TECH SUBMARKET SNAPSHOTS
Central LoopMore known for its traditional office users like law firms and financial companies, the 1.8 million sq. ft. of space leased by tech users in the Central Loop amounts to 6.5% of all occupancy in that submarket – making for one of the smallest tech footprints in the CBD. However, although the share of tech tenants in the Central Loop is small, the submarket offers users with expanding space requirements room to grow. While startup companies prefer the smaller lofted floor plates in River North that offer flexible configurations for collaborative workspaces, Central Loop buildings offer interior spaces that help more established companies focus on branding and department segmentation. Typical floor plates in River North average 17,000 sq. ft., while those in the Central Loop are 10-12% larger, on average.
14 // © 2016 CBRE, INC.
TECH FOOTPRINT
TECHBOOK CHICAGO 2016 TECH FOOTPRINT // 15
Van Buren
Jackson
Adams
Monroe
Randolph
Washington
Madison
Fulton
Carroll
Kinzie
Hubbard
Grand
Wac
ker
Fran
klin
Cana
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Clin
ton
Jeff
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Hals
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Raci
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Aber
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Eliz
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Carp
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MayAd
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Ogde
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Lake
Kinzie
Illinois
Grand
Ohio
Ontario
Erie
Hubbard
Huron
Superior
Chicago
Pearson
Clar
k
Dear
born
LaSa
llee
Wel
ls
Orle
ans
Larr
abee
Huds
on
Sedg
wic
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King
sbur
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Wab
ash
Wacker
Randolph
Washington
Madison
Chicago River
Monroe
Adams
Jackson
Van Buren
LaSa
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Clar
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Mic
higa
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Colu
mbu
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Lake
Shor
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Rush
Mic
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St C
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Fair
bank
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McC
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Lake Shore Drive
Chestnut
Delaware
Walton
Oak
Wel
ls
Lake
Dear
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Stat
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Wab
ash
Fran
klin
Stat
e
Kennedy
FEEDER RAMP
Eisenhower
ogilviestation
unionstation
CENTRAL LOOP TECH FOOTPRINT TAKEAWAYS• Central Loop has become a popular submarket for tech
companies as buildings such as 222 N LaSalle St and 203 N LaSalle St have been re-positioned as viable locations for these types of firms.
• In addition to Avant, tech companies such as kCura, Digitas, STATS, Sprout Social, and GrubHub call the Central Loop home.
• The Central Loop has the second largest volume of tech tenants by square footage, bested only by the West Loop.
• It is also the second largest submarket by rentable building area, totaling 35,818,728 sq. ft.
TECH COMPANY CONCENTRATIONS
250,000+ SF
100,000–250,000 SF
50,000–100,000 SF
25,000–50,000 SF
10,000–25,000 SF
< 10,000 SF
TECH FOOTPRINT
16 // © 2016 CBRE, INC.
DEVELOPMENT PIPELINE
Fulton MarketDue to all the activity and developer interest, Fulton Market/Far West Loop was officially added as a submarket by CBRE in Q1 2015. What once was an escape from the high rents in West Loop and River North is now a contender when it comes to asking rates, with Class A rents going for high $30s gross. Granted, much of this product still needs to be built, but the bullishness for this submarket has not diminished. Defined as the area west of I90/94 to Ashland and between Grand Avenue and Madison Street, it has seen an influx of established tech tenants as well as start-up companies. Historic industrial properties have been redeveloped into modern flexible office buildings favored by tech firms. As of Q4 2015, there was 3.1 million sq. ft. of new development either under construction or in the pipeline. The area’s tech footprint is nearly 500,000 sq. ft. and is home to tenants such as Threadless, Basecamp and Sandbox.
Van Buren
Jackson
Adams
Monroe
Randolph
Washington
Madison
Fulton
chicago river
Carroll
Kinzie
Hubbard
Grand
Wac
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klin
Cana
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Clin
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Jeff
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Carp
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MayAd
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Ogde
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Kennedy
Eisenhower
ogilviestation
unionstation
WholeFoods
Mariano’s
Target
1K Fulton535,000 SF
401 N. Morgan
910 W. Van Buren
820 W. Jackson
833 W. Jackson
850 W. Jackson
322 S. Green
300 N. Eliazbeth
954 W. Washington
1033 W. Van Buren
801 W. Adams
310 S. Peoria
940 W. Adams
901 W. Jackson
1021 W. Adams
210 N. Racine
1026 W. Van Buren
370 N. Carpenter 10,300 SF
1330 W. Fulton266,000 SF
(New Development 4/17)
1056 W. Lake(New Development)
Harpo 1058 W. Washington550,000-900,000 SF(New Development 2017)
1100 W. Grand100,000 SF
(New Development)
801-811 W. Fulton70,000 SF(New Development)
213 N. Peoria120,000 SF
(New Development)
NEW AREA OF OFFICE GROWTH
TRADITIONAL AREA OFOFFICE SPACE WEST OF LOOP
RANDOLPH ST RESTAURANT CORRIDOR
GREEKTOWN
NobuHotel
155 rooms
CrownPlaza
398 Rm.
SoHoHouse
35 rooms
AceHotel
150 rooms
EquinoxHotel
145 rooms
Lake &Green
165 rooms
16 // © 2016 CBRE, INC.
TECH FOOTPRINT
TECHBOOK CHICAGO 2016 TECH FOOTPRINT // 17
FULTON MARKET TECH FOOTPRINT TAKEAWAYS• Fulton Market has numerous proposed new
development projects, however, existing supply is limited. This has driven up the rents for the existing office product, and the average gross rents for a portion of the submarket are comparable to the Loop.
• 1000 W Fulton Ave, also known as “1K Fulton” was completed in Q2 2015, adding 535,510 sq. ft. to the inventory. This building is now 100% occupied.
• 1330 W Fulton, or “Fulton West” is currently underway and delivering mid-2017, adding another 290,000 sq. ft. of office space. Approximately 28% is pre-leased at the new development.
Van Buren
Jackson
Adams
Monroe
Randolph
Washington
Madison
Fulton
chicago river
Carroll
Kinzie
Hubbard
Grand
Wac
ker
Fran
klin
Cana
l
Clin
ton
Jeff
erso
n
DesP
lain
es
Hals
ted
Gree
n
Peor
ia
Sang
amon
Mor
gan
Raci
ne
Aber
deen
Eliz
abet
h
Carp
ente
r
MayAd
a
Ogde
n
Lake
Kennedy
Eisenhower
ogilviestation
unionstation
WholeFoods
Mariano’s
Target
1K Fulton535,000 SF
401 N. Morgan
910 W. Van Buren
820 W. Jackson
833 W. Jackson
850 W. Jackson
322 S. Green
300 N. Eliazbeth
954 W. Washington
1033 W. Van Buren
801 W. Adams
310 S. Peoria
940 W. Adams
901 W. Jackson
1021 W. Adams
210 N. Racine
1026 W. Van Buren
370 N. Carpenter 10,300 SF
1330 W. Fulton266,000 SF
(New Development 4/17)
1056 W. Lake(New Development)
Harpo 1058 W. Washington550,000-900,000 SF(New Development 2017)
1100 W. Grand100,000 SF
(New Development)
801-811 W. Fulton70,000 SF(New Development)
213 N. Peoria120,000 SF
(New Development)
NEW AREA OF OFFICE GROWTH
TRADITIONAL AREA OFOFFICE SPACE WEST OF LOOP
RANDOLPH ST RESTAURANT CORRIDOR
GREEKTOWN
NobuHotel
155 rooms
CrownPlaza
398 Rm.
SoHoHouse
35 rooms
AceHotel
150 rooms
EquinoxHotel
145 rooms
Lake &Green
165 rooms
FULTON MARKET HIGHLIGHTSNEW DEVELOPMENTS
EXISTING OFFICE
Photo Credit: Courtesy of Sterling Bay
TECH FOOTPRINT
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DEVELOPMENT PIPELINE
Goose IslandIn major cities across the country, developers have taken an interest in the rehabilitation of centrally located historic communities, creating fresh, appealing space for today’s young urban demographic known as the “Millennials.” Thanks to the foresight and innovation of industry-leading developers such as South Street Capital and R2 Companies, former warehouses and manufacturing plants are becoming new hubs of office and mixed-use development projects. Goose Island, located northwest of the CBD, is a prime example of this old-to-new paradigm and is on its way to becoming one of the most sought-after submarkets in the city. Additionally, just north of Goose Island in Lincoln Park, C.H. Robinson is planning a 207,000-square-foot build-to-suit with Sterling Bay at 1511 W Webster. Sterling Bay has also acquired the razed Finkl & Sons steel mill, encompassing 28 acres of land along the Chicago River and plans to develop more office product. It is only a matter of time before the development frenzy takes off in this peripheral area of downtown.
Larr
abee
King
sbur
y
Chicago River
Haines
Hooker
Hickory
Cherry
North Branch
Bliss
Division
Hals
ted
EvergreenEastman
Blackhawk
Cher
ry
North
Kennedy
934 N. North Branch
909 W. Bliss
700 W. Chicago
DMDIIWrigley Global
Innovation Center
Mercedes-Benz
enterprise rent-A-Car
Hertzrent-A-Car
Kendall College
Chicago Academy for the arts
British Schoolof Chicago
Toyota
Lexus
Apple store
REI
Crate and Barrel
FedExship center
Whole foods
starbucks starbucks
SoNo East apatments840 W Blackhawk st
Petsmart
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TECH FOOTPRINT
TECHBOOK CHICAGO 2016 TECH FOOTPRINT // 19
Larr
abee
King
sbur
y
Chicago River
Haines
Hooker
Hickory
Cherry
North Branch
Bliss
Division
Hals
ted
EvergreenEastman
Blackhawk
Cher
ry
North
Kennedy
934 N. North Branch
909 W. Bliss
700 W. Chicago
DMDIIWrigley Global
Innovation Center
Mercedes-Benz
enterprise rent-A-Car
Hertzrent-A-Car
Kendall College
Chicago Academy for the arts
British Schoolof Chicago
Toyota
Lexus
Apple store
REI
Crate and Barrel
FedExship center
Whole foods
starbucks starbucks
SoNo East apatments840 W Blackhawk st
Petsmart
GOOSE ISLAND HIGHLIGHTSNEW DEVELOPMENTS
AMENITIES
GOOSE ISLAND TECH FOOTPRINT TAKEAWAYS• With high demand for land in Chicago and pressure
from expanding neighborhoods in Lincoln Park, Clybourn Corridor, River North, River West, Bucktown and Wicker Park – Goose Island is at the center of economic development.
• Tech firms, especially start-up companies, are attracted to Goose Island’s existing red brick facades, large open floor plates and historic architectural detail.
• One of Goose Island’s last intact sites for redevelopment is the North Branch River Campus. This campus is home to 909 W Bliss and 934 N Branch, totaling 700,000 sq. ft.
• The 909 W Bliss development by R2 Companies offers a two-building complex with connecting skybridge, with current redevelopment initiatives including a fitness center, on-site restaurant and rooftop decks.
• 934 N Branch is the newest addition to the North Branch River Campus on Goose Island, located right on the Chicago River. R2 Companies plans to build up to 364,661 sq. ft. of office space with floor to ceiling windows and hyper efficient floor plates.
• R2 Companies has also agreed to build a pedestrian bridge connecting the island to Ogden Avenue, one of Chicago’s main roadways.
TECH FOOTPRINT
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BY THE NUMBERS
6.5% RISING AVERAGE ASKING RATE AT AN ALL-TIME HIGH Y-O-Y
2.1M SF+ OF POSITIVE NET ABSORPTION IN THE PAST TWO YEARS, DRIVEN BY TECH TENANTS
15.5% AVERAGE TECH LEASING ACTIVITY OF THE TOTAL CBD LEASING SINCE 2011
IMPLICATIONS Despite a modest footprint, tech tenants accounted for a large percentage of positive leasing activity over that past 4 years, and tenant requirements have gotten larger as they expand their footprint
Office Market
03
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OFFICE MARKET
2015 ended on a positive note in the CBD with 792,337 sq. ft. in positive net absorption. These gains caused the direct vacancy to drop another 60 basis points (bps) from the previous quarter down to 11.4%. The total net absorption for the year reached pre-recession levels at 1,336,729 sq. ft., while the direct vacancy declined by 1% year-over-year. Major market drivers continue to be the growth of tech, financial services, and shared workplace companies, as well as suburban relocations to the CBD. Figure 5 illustrates the positive momentum since 2012. As a result of a tightening office supply and strong tenant demand, landlords have been pushing rents in all building classes. The overall average asking gross rent has risen by $0.60 per sq. ft. quarter-over-quarter, up to $36.79 gross. Class A rents rose to $43.04 from $42.56 in the previous quarter. Rents are at an all-time high in the CBD, rising 6.2% year-over-year.
LEASING ACTIVITYTech leasing activity reflects the industry’s growth pattern. Heightened leasing from tech tenants in 2011 marked the emergence of this industry as a major factor in the Chicago economy and office market. Current tech expansion is led by a new group of start-ups, who have been able to sustain themselves within the marketplace.
Since 2011, a total of 6.8 million sq. ft. of space was leased by tech tenants, peaking in 2015 at 23.8%, of the overall leasing activity in the CBD. In contrast a total of 3.7 million sq. ft. of space was leased over the period leading up to the Chicago tech boom. The most activity was seen in River North, which experienced 37.9% of the tech leasing activity in 2015.
FIGURE 6:
TECH LEASING ACTIVITY 2006-2015
0
5
10
15
20
25
2015201420132012201120102009200820072006
SQ. F
T. ( M
ILLI
ONS)
TOTAL TECH SF
0%
5%
10%
15%
20%
25%
TOTAL TECH PERCENTAGE
-20
-15
-10
-5
0
5
10
15
20
25
30
20152014201320122011201020092008200720062005
SQ. F
T. ( M
ILLI
ONS)
NET ABSORPTION CLASS A CLASS B DIRECT VACANCY
8%
10%
12%
14%
16%
18%
FIGURE 5:
OFFICE MARKET HISTORY: NET ABSORPTION VS. DIRECT VACANCY
Source: CBRE Research, Q4 2015.
Source: CBRE Research, Q4 2015.
TECHBOOK CHICAGO 2016 OFFICE MARKET // 21
TECH FOOTPRINT
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OFFICE MARKET
HISTORICAL DEMANDThe tech landscape has changed significantly since the beginning of 2011. Even though it always had a presence in the CBD leasing market, the tech industry was 50-60% smaller than its current level. As seen in figure 6, from 2006-2010, tech leasing averaged 9% of the total CBD leasing demand, compared to an average of 16% in the most recent cycle from 2011-2015. This can be attributed to a rebounding local economy which helped foster strong start-up activity, leading to growing space demands in the CBD.
CURRENT DEMANDThe tech industry currently comprises roughly 10.3% of the tenants seeking space in the CBD, compared to 19% from legal tenants and 16.7% from financial services. The largest tech requirement is as high as 200,000 sq. ft. by a company currently occupying space in the West Loop. A year-over-year comparison illustrates that tech requirements have gotten larger, as tenants in the market for 50,000 – 100,000 sq. ft. now account for roughly 37%, up from 15% at the end of 2014. This indicates that tech firms are seeking larger blocks of space to accommodate growth.
FIGURE 7:
TECH DEMAND BY SPACE REQUIREMENT
Source: CBRE Research, Q4 2015.
SQ. F
T. ( T
HOUS
AND)
2014 2015
0
200
400
600
800
50,000-100,00020,000-49,99910,000-19,000
RENT GROWTHWhile the market as a whole has experienced rent growth during recent years, submarkets with tech exposure have seen higher than average rent gains. Since the tech resurgence began in 2011, Class B and C (often favored by tech tenants) River North rents have grown 38%, West Loop 21%, while CBD rents in this segment rose by just 14%. Overall rent growth was also robust, and in all classes River North saw an increase of 64%, West Loop 13%, and the CBD grew by 14%.
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TECH FOOTPRINT
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OFFICE MARKET
RIVER NORTH38%
RENT GROWTH SINCE Q4 2011
WEST LOOP21%
RENT GROWTH SINCE Q4 2011
OVERALL CBD14%
RENT GROWTH SINCE Q4 2011
FIGURE 8:
ASKING RENT GROWTH BY SUBMARKET
Source: CBRE Research, Q4 2015.
TECHBOOK CHICAGO 2016 OFFICE MARKET // 23
TECH FOOTPRINT
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BY THE NUMBERS
22.6% GROWTH IN TECH SECTOR EMPLOYMENT SINCE 2010
34% OF ADULTS AGE 25+ HAVE A BACHELOR’S DEGREE OR HIGHER COMPARED WITH US AVERAGE OF 29%
5.1% GROWTH OF AVERAGE ANNUAL TECH EMPLOYEE SALARY SINCE 2010
IMPLICATIONS Local tech firms are ramping up their hiring efforts and expanding their space requirements, helping to redefine Chicago’s economy in the process.
Tech Talent
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TECH TALENT
Chicago continues to attract talented math, science and engineering graduates and nurture visionary tech entrepreneurs. Employment in high tech industries in Chicago has grown 22.6% since 2010, fueling demand amongst office users in the tech industry. Today, the metro area tech labor pool boasts a total of 156,130 employees, ranking number five amongst US cities with large tech labor pools of over 50,000 people.
Typically, the greatest cost for occupiers seeking top tech talent is wages paid to employees. In Chicago, paying for tech talent comes at a cost that is less than the U.S. average while providing access to one of the largest labor pools in the country. 34% of adults over 24 have a bachelor’s degree or higher compared with the U.S. average of 29% – making the city a hub for higher education. Additionally, tech professionals earn 4% less than the average
U.S. wage – a significant cost savings when compared to cities such as Silicon Valley where tech professionals are compensated 35% above the U.S. average.
More and more, Chicago graduates are choosing tech-related career paths and are receiving support from local universities and city-backed initiatives aimed at developing successful digital ventures. Between 2012 and 2013, Chicago-area universities graduated 5,009 students with tech degrees. Students at top Chicago universities have launched over 300 VC-backed firms since 2009 and raised more than $3.7 billion. Public-private partnerships such as UI Labs – a recently launched research and commercialization collaborative – are choosing to locate in close proximity to expanding tech office markets, amplifying the cluster of innovation and increasing the value of nearby office properties.
TECH OCCUPATION EMPLOYMENT (2014)
EMPLOYMENT GROWTH (2010-2014)
ANNUAL AVERAGE WAGE (2014)
WAGE GROWTH (2010-2014)
SOFTWARE DEVELOPERS/PROGRAMMERS
55,950 32.6% $81,640 -6.4%
COMPUTER SUPPORT, DATABASE & SYSTEMS
78,450 31.4% $83,109 14.0%
COMPUTER & INFORMATION SYSTEMS MANAGERS
11,830 2.3% $126,390 8.3%
TECHNOLOGY ENGINEERING-RELATED
9,900 -28.8% $77,497 4.7%
TOTAL TECH OCCUPATION EMPLOYMENT 156,130 22.6% $92,159 5.1%
FIGURE 9:
TECH EMPLOYMENT BREAKDOWN
Source: U.S. Bureau of Labor Statistics, May 2014.
TECHBOOK CHICAGO 2016 TECH TALENT // 25
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BY THE NUMBERS
$1.7 B INVESTED IN CHICAGO STARTUPS IN 2015
9% GROWTH IN VENTURE CAPITAL EXITS Y-O-Y
50%+ OF THE HOTTEST INDUSTRIES FUNDED IN 2015 ARE ENTERPRISE TECHNOLOGY COMPANIES
IMPLICATIONS Chicago’s tech industry is gaining momentum, attracting venture capital funding from local and international investors and giving local companies the capital needed to grow without leaving the city
Tech Industry Indicators
05
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TECH FOOTPRINT
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Increasingly, venture capitalists are taking notice of Chicago tech firms. In 2015, funding for digital companies increased 9% over the previous year, culminating in the best year ever for local startups, who collectively raised nearly 1.7 billion in debt and equity financing. Investors received massive payouts in 2015 as well, as venture-backed companies exited via IPO or acquisition for over $8.2 billion – representing 17% year-over-year growth.
Chicago firms are finding their niche in enterprise-related technologies, taking advantage of the region’s diverse economic composition and wealth of corporate headquarters. In 2015, companies receiving the most funding included those with a focus on enterprise-related
technologies such as marketing, advertising, enterprise software and financial technology. In particular, financial tech companies raised a total of $805 million in venture capital funding. Over 30% of the companies listed on the Fortune 500 are located in the Midwest and a total of 34 are headquartered in the Chicago metropolitan region – providing a wealth of opportunities for tech firms seeking a market for their software and services.
Economic fundamentals appear strong for the Chicago tech market. The rapid growth of the past has raised concerns over growth sustainability and how the local tech industry will endure business cycle changes.
FIGURE 10:
TECH FUNDING 2011-2015
FUNDING RAISED IN 2015 INCREASED BY 9% MAKING IT THE BEST YEAR FOR FUNDING EVER!
Source: Built in Chicago, 2015 Chicago startup report.
2011
$1,453M
$391M
$1,055M
$1,585M$1,721M
2012 2013 2014 2015
+9%
TECH INDUSTRY INDICATORS
TECHBOOK CHICAGO 2016 TECH INDUSTRY INDICATORS // 27
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TECH INDUSTRY INDICATORS
While some worry of a growing tech bubble, others like J.B. Pritzker, managing partner of Pritzker Group Venture Capital, the largest technology venture capital investor in the Midwest and co-founder of Chicago-based tech incubator 1871, point to the perception of Chicago startups within the VC community. Recently quoted by tech news outlet, Built In Chicago, Pritzker noted that enterprise tech companies in Chicago “tend to have more meat on them.” He further explained, “ you will tend to see more revenue and potential for profitability among Chicago entrepreneurs, than you will among entrepreneurs anywhere else in the country.”
Not only are Chicago firms viewed as being more pragmatic and stable than their consumer tech equivalents; Chicago’s diverse economy helps to dampen the effects of potential downturns. When compared to cities with a high degree of employment clustering in the technology industry, Chicago markets have a true advantage. Although, both Chicago and Silicon Valley have virtually the same level of tech employment, only 9.2% of office using jobs in Chicago are technology based compared to 39.9% in Silicon Valley – lessening the impact of adverse business cycles.
MARKETING/ADVERTISING
HEALTH TECH
FINANCIAL TECH
CONSUMER WEB
E-COMMERCE
ENTERPRISE SOFTWARE
NUMBER OF COMPANIES FUNDING FOR INDUSTRY
$108M
$176M
$805M
$120M
$50M
$59M
FIGURE 11:
MOST POPULAR INDUSTRIES FUNDED IN 2015
Source: Built in Chicago, 2015 Chicago startup report.
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TECH FOOTPRINT
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TECH FOOTPRINT
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TECH FOOTPRINT
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Industry OutlookInvestors are cautiously optimistic about the Chicago tech market. Indicators for the tech industry as a whole are flashing warning signs due to the inflated valuations placed on companies that fail to deliver corresponding earnings. A number of former high profile unicorns previously valued at $1 billion or more, (Twitter, FitBit, Zynga and Box, just to name a few) are now trading below their original IPO price – causing investors to re-evaluate firms with little-to-no profits and questionable value-propositions. Although some companies are drawing skepticism about their actual market capabilities, most analysts agree today’s looming tech bubble is nothing like what the industry experienced in the early 2000’s. The key difference being that in today’s market consumer demand for technology products is more robust and the growing influence of the internet on multiple aspects of everyday life has led to a practical need for enterprise and consumer-related tech products and services. This demand has resulted in employment growth which has a ripple effect on the office market and commercial real estate as a whole.
Indicators for the Chicago tech industry convey a sustainable outlook for continued growth in consumer and business-related technologies for a diversity of local industries; including health, e-commerce, finance, human resources, mobile technology and others. Local support for start-up and early-stage firms, along with investments from venture capital funds, suggests growth is likely to continue.
Additionally, the success of later-stage firms such as Avant, electing to headquarter in Chicago, indicates a solid future for growth in the city. Chicago office real estate can expect strong demand resulting from tech industry growth. Another boost to this industry may be attributed to locally-based and transplant firms choosing to migrate to Chicago for the deep and diverse tech talent pools within its unique urban environment. The tech industry’s influence on the CBD office market will continue to develop as the start-up culture becomes further entrenched and as existing companies mature and put a sharper focus on their space needs.
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TECH FOOTPRINT
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Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.
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FOR MORE INFORMATION PLEASE CONTACT:
MATTHEW WALASZEK
Senior Research Analyst+1 312 297 [email protected]
MEGHAN MCSHAN
Senior Research Analyst+1 312 935 [email protected]