Why Phoenix Is A Budding Tech Hub

The future of office space is not just about open floor plans or connectivity or even the kind of amenities that millennials seem to like. It is also about the kinds of companies that will be taking space in a particular market, according to the speakers at Bisnow's Phoenix Office of the Future event.

For Phoenix, that means more tech users than expected even a decade ago, according to the speakers on the Rise of Phoenix as a Tech Hub panel. The market might never become Boston or San Jose, but it is becoming home to a strong regional tech cluster.

"The word tech is going to be used a lot today, and it's useful to have some idea of what it refers to," said Greater Phoenix Economic Council Director of Business Development Thomas Maynard, who moderated the panel.

"From our perspective, tech involves the industry codes related to IT or software development, as well as advanced manufacturing."

Tech is not always in the form of traditional, Silicon Valley kinds of tech specialists, Maynard said. One example locally is USAA, the financial services company. 

Last year, USAA announced plans to add 1,000 new software development jobs at its Phoenix office by the end of 2020 — a major influx of tech jobs by a company that does not fit the standard perception of a tech company, but which is tech-intensive all the same.

"From a real estate standpoint, there are certainly traditional tech-space users, but there are also a lot of other companies that fill tech-oriented space because of the tech side of their business."  

According to CBRE data cited by the speakers, there were 122,500 science, technology, engineering and math jobs in the metro Phoenix area in 2017, with 17,600 of those jobs added from 2011 to 2017.

The median wage among the STEM jobs here is about $75K, much higher than most jobs. There are also about 12,000 software developers in Phoenix, and that is still considered an emerging occupation in the market. 

The number of tech companies in the region has increased from 67 to 281 over the last five years, a growth of more than 300%, with many coming from California, where the cost of business and the cost of living is higher.

ViaWest Group founding partner Gary Linhart, whose firm develops office and industrial properties, said a surprising amount of leasing activity at his company's office properties has been by tech companies in the last few years.

He also said the tech industry here is a bit more diffuse than in some other tech hubs.

"A lot of tech markets around the country are very concentrated," Linhart said. "As a tech market, Phoenix is a little different.

"We have a menu of offerings. Downtown Phoenix is a little more edgy, while Downtown Tempe has large institutional tech companies, and Downtown Scottsdale has more appeal to millennials. There [is] a wide range of offerings, and that's one of our strengths."

The role of Arizona State University in helping build Phoenix as a tech hub is hard to overstate.

ASU Executive Vice President, Treasurer and Chief Financial Officer Morgan Olsen said the university's role driving tech in the Valley stems from its greater role in helping people prepare to work in the global information economy and helping the region compete in that economy. 

"We have 21,000 students studying engineering, and over 3,000 in some form of information technology," Olsen said. "But technology is having an impact far beyond those specialties. Every profession and every kind of work is affected by technology, and we try to be a university that helps students meet that reality."

As a major research university — ASU had about $550M in sponsored research last year — Olsen said the research done at the university "needs to be relevant, useful, accessible and to contribute to the betterment of people's lives."

If ASU's research is all of those things, it is only natural that as students graduate into tech jobs and start tech companies locally, Phoenix will grow as a tech hub, he said. 

Lyft General Manager, Southwest Region Drena Kusari said her company decided to built a local team in Phoenix about two years ago, and since then its growth has been tremendous.

"Our assumptions about the suitability of Phoenix for us have been completely validated," she said.

Last summer, Lyft opened its Phoenix Lyft hub office at the Cotton Center building off 40th Street and Broadway Road after more than a year in Mac6, a co-working office in Tempe. The new 3,800 SF office houses full-time employees and offers a driver’s lounge for current drivers.

"We needed space to grow into something larger in Phoenix," Kusari said.

"Our vision is to have software developers here. We knew that we wanted a stand-alone building, so that it's more accessible, and we wanted a lot of parking. It also had to be a place we could make into an inviting, lively space for us and our guests." 

DPR Construction Research Marketer Shelby Riddell, whose company focuses on building technologically advanced facilities, said her customers represent a diversity of geography in the Phoenix market.

"A growing tech company from out of state can go into the warehouse district Downtown, or a larger firm can find a research park in Tempe. Tech isn't in one pocket in particular. That's one of the strengths of the market."

DPR has built over 30 properties in greater Phoenix that are tech-oriented, including data centers, healthcare facilities and office space primarily for tech users.

Earlier this decade, for instance, the company built its own Phoenix-area HQ as the first building in Arizona to operate at net-zero energy and as a lab for construction technologies.