Investors are clamoring for commercial real estate in markets that bounced hardest in the high-tech era of the 1990s into 2000. What's different this time is that cities like Austin and Portland are developing diverse economies less reliant on software companies.

Austin's recovery has been remarkable. Following a net loss of 30,000 jobs over a two-year period ending in 2003, local office vacancy rates soared to a high of 24.2% in early 2004, according to Property & Portfolio Research (PPR). By the first quarter this year, vacancy had dipped to a healthier 13.3%. Portland's vacancy rate peaked at 18.9% in 2004, but registered 15.5% early this year.

Market observers say these dot-com survivors retain many of the qualities that drew knowledge firms during the boom. The most important of those attributes are colleges that crank out graduates, and a vibrant culture that keeps young professionals in the labor pool. For example, the Austin metro's six universities and two community colleges registered 118,000 students last fall, equal to nearly 8% of its 1.5 million residents.

“They're not technology centers, they are innovation centers,” says Ross Moore, director of market and economic research for Boston-based Colliers International. “They attract young, smart people, which is where you go for new ideas.”

Several of the former dot-com boom markets are experiencing double-digit rental growth, PPR reports. Austin's average office rents across all classes climbed to $21.11 per sq. ft. at the end of the first quarter, up 13.7% from a year ago. Boston's rent accelerated 15.7% in the same period, rising from $24.43 to $26.36 per sq. ft‥

Austin is top in job growth rates among the 54 metros tracked by PPR, adding 30,900 jobs in the year ended March 31 for 4.3% growth, compared with a national job rate of 1.4%.

What's more, Austin's new jobs are in a variety of fields including government, health care, financial services and hospitality. Other dot-com bastions, including Portland, are experiencing a similar diversification beyond high tech.

Those growth trends are attractive to investors. So are barriers to entry by competitors, which in Austin include limitations on new big-box retail and a strenuous development approval process. Portland employs the Urban Growth Boundary, set by Oregon municipalities to encourage dense development.

Investors looking for portfolio plays have fewer deals to choose from in these small markets, but that creates additional barriers to entry. In June, Los Angeles-based Thomas Properties Group Inc. (Nasdaq: TPGI) and partners acquired nearly 9% of Austin's entire office inventory in a single deal, paying $1.15 billion for 3.5 million sq. ft. of the former Equity Office Properties portfolio.

In a similar deal last March, Shorenstein Properties LLC purchased 4 million sq. ft. of former EOP assets in Portland for approximately $1 billion from The Blackstone Group.

“The Austin market has historically demonstrated a resilience, atypical of other U.S. markets, where it continues to show net absorption even through the downturns,” says John Cischo, executive vice president for development at Thomas Properties. “Businesses want to be in Austin because their employees are going to be happy there.”