The number of technology companies operating downtown has reached a critical mass as CEOs use the prime location to lure workers despite the higher lease rates.
The steady stream of tech companies coming downtown has been led by companies such as HomeAway Inc.,Facebook Inc., WhaleShark Media Inc., theDachis Group Inc. and Mutual Mobile Inc. And the launch of Austin TechLive on the top floor of the Omni Hotel building in May seemed to solidify the shift.
For 16-year serial entrepreneur Craig Malloy, CEO of Bloomfire Inc., his previous two companies were always based in seven locations along Mopac Expressway or off U.S. Highway 360. But Bloomfire, which was founded in 2010, moved to West Sixth Street in January to take advantage of all the amenities available to downtown workers.
The company employs 23 workers, and that is expected to rise to 50 within two years. Despite the additional lease costs and parking problems, moving downtown seemed like a good way to attract quality workers who wanted to be close to the action, Malloy said.
“There just seems to be this buzz and new culture about being downtown,” he said.
That buzz is being generated by a growing population of younger tech workers who want to live, work and play downtown rather than commute to work. The increased demand has raised the annual lease rate for the average downtown office space to $35.50 per square foot versus $25.85 in Northwest Austin, said Doug Jones, a partner at Austin-based HPI Corporate Services LLC.
“It’s crazier than it was two years ago,” he said.
Malloy — previously the CEO of LifeSize Communications Inc., which was acquired in 2009 by Logitech International SA (Nasdaq: LOGI) for $405 million — said an increased supply of downtown living space combined with more activities has fostered the shift during the last three years.
The May opening of Austin TechLive, a 22,000-square-foot co-working space, by serial entrepreneur Josh Baer was designed to create an “entrepreneurial center of gravity” for Austin, he said. The sprawling space was previously occupied by Internet advertising firm Smiley Media Inc.
Austin TechLive hosts regular tech events in addition to happy hours organized by several other industry groups. Nearly all of the events are downtown. As a result, technology workers are looking to be nearby to make connections, Malloy said.
In 2009, HomeAway (Nasdaq: AWAY) selected a high-profile downtown location in a new building catty-corner from Whole Foods Market Inc.’s (Nasdaq: WFM) headquarters. In 2010, California-based Facebook (Nasdaq: FB) opened an office downtown on West Sixth Street. It was the company’s first office outside California.
Last year, technology company Mutual Mobile took over an entire floor of the downtown Capitol Tower on East Ninth Street. About 190 of the company’s 280 workers are now based downtown, Chief Operating Officer Tarun Nimmagadda said.
Spanning Inc., a cloud computing security company founded in 2010, moved in June from RM 2222 to Congress Avenue, CEO Charlie Wood said.
Virtualization and cloud computing have eliminated the need for desktop computers and server rooms and enabled such companies to shrink the space they need. And although the cost of downtown office space is 25 percent higher — even without parking — compared to outlying areas of Austin, it’s well worth it, Wood said.
“Fundamentally, for us, it’s a cultural-slash-recruiting thing,” he said. Employees “want to be in the middle of things. I can’t imagine us ever moving.”
Date: Friday, August 17, 2012, 5:00am CDT – Last Modified: Thursday, August 16, 2012, 5:32pm CDT
- Christopher Calnan
- Staff Writer- Austin Business Journal