A combination of secular trends is driving demand for tech related office space as new clients and investors are looking at the firms for both services and returns in a quickly improving climate.
New regulatory requirements for financial institutions and healthcare facilities that call for client and patient records to be held in secure, real time online databases has bolstered the firms that provide these services and driven demand for more operating office space in key markets. At the same time, technology companies are expanding their businesses into new areas, increasing their demand for space.
This technology-related office space is a small but growing slice of the overall office sector. Demand from corporations as well as interest from venture capital and private equity firms in evolving technology companies has steadily improved fundamentals for the sector, which has struggled since the original tech bubble burst.
The huge success of Google's IPO last year, and its announcement last week that it will provide television programming, were cited by Ross Moore, an analyst at Colliers International Property Consultants. Last week, rumors of a possible $12 billion buyout of computer outsourcing company Computer Sciences by Blackstone Group and H-P focused attention on the demand for office space as more companies seek out computer data centers and similar IT service providers.
A case in point is Digital Realty Trust, a San Francisco-based office REIT that is the only real estate investment trust to focus entirely on technology-related space. Digital Realty was also the best performing REIT in 2005. The company's stock price rose 68% last year for a total return of 78%. The REIT completed a secondary offering in July, less than a year after its initial public offering in October 2004. Digital's dividend is about 4.7%.
Digital Realty was formed in the midst of the tech bubble in 2001 as a contrarian play. While the improving environment may find new tech-based REITS coming to market, tech properties are not typical real estate sales, said Mike Foust, ceo. "REITs of this type have to be savvy in engineering and in finding customized solutions for tenants who are often new to the market," he added.
