The recent rise of the tech sector in Asia Pacific has been meteoric, with tech firms needing more office space to accommodate their rapid expansion.
Take for example how Singles’ Day, the biggest day in online shopping in China, saw Alibaba Group recording US$17.8 billion in gross merchandise volume in China. That’s $15.1 billion more than all sources combined on Cyber Monday in the United States.
Tech firms, such as Alibaba, form an increasingly important source of office and business park leasing demand, accounting for 17 percent of five million square metres of gross leasing activity from 4Q15 to 3Q16.
Our data reveals that tech companies that design hardware, such as Cisco and Juniper, were the most active category, followed by e-commerce companies including Amazon and Flipkart.
To get to the heart of what drives office location choice for companies, we surveyed JLL leasing experts and analysts in 17 Asia Pacific markets. Our forthcoming report, Tech firm office location choice—how does it work in Asia Pacific?, describes location choice drivers in detail. We summarise some of our key findings below.
Size matters, so does cost
Market size is key for tech firms in selecting a new office location. Across nearly all tech segments we analysed, the potential of business growth as a result of tapping into big markets has a substantial impact on location choice within the region.
Some companies have identified India as a key market in part because of its large consumer base of more than one billion people in total population. For example, Xiaomi revenues topped US$1 billion, less than two years after first entering India.
Other advantages such as cost, skill level and rule of law also play an important role in the location choices tech firms make across the region.
Attracting the right talent is critical
Agglomerative forces such as talent pooling and knowledge spill-overs have long been theorised to drive firms’ location decisions. We need not look far to find evidence.
For example, financial services companies cluster near stock exchanges. Perhaps the most celebrated industry cluster in recent history has been the rise of tech firms in Silicon Valley.
Some of the most well-known companies specialising in computer technology, consumer electronics, social media and even automobiles are headquartered there.
According to our survey, at the local level, i.e. within a city, access to talent pools was cited as the most important driver of location choice. Firms understand that attracting and retaining the right talent is critical to the success of their business.
Our analysis indicates that tech firms are an important source of occupier demand for investment grade office and business park space. Furthermore, given the accelerating pace of technology advancements, tech firms are set to play a key role in shaping not only our work and personal lives but also occupier demand.