Apr 20, 2017, 6:58 PM
Could big tech tenants be the driver for new tech leasing?
It’s been a slow-go for New York City tech leasing recently, even with a slightly better Q1. In the record year of 2014, tech leasing in each quarter totaled well over one million square feet. Since then, tech leasing has softened each quarter.
A lack of space in tech-friendly Midtown South, investors being more selective with VC funding and a wave of political and economic uncertainty have clamped down on overall volume.
Will large tech companies be able to pick up the slack? They can make a big difference since they're less price sensitive than startups, especially when rents in some of the hottest submarkets top $80-100 p.s.f.
So what’s happening, where?
Already, we’ve seen Spotify’s 378,000-square-foot move to Downtown’s 4 World Trade Center boost Q1 tech leasing activity. And other technology, advertising, media, and information (TAMI) tenants have followed as well this quarter.
Downtown’s world-class broadband access and ample WiFi is ideal for tech tenants. Newer construction, as well as flex space options, are often offered at a discount compared to Midtown South.
Tenants also have easy access to the waterfront, numerous parks, new restaurants and a number of transit vehicles (MTA and PATH). But there are other submarket options, too.
Midtown offers close proximity to the coveted Midtown South and value on creative product that tech companies want. Neighborhoods like Penn Plaza and the Garment District are literally just steps away from the tech cluster in Midtown South and Times Square’s easy transportation access and variety of entertainment and food options appeal to top tech talent.
Planned as a wired community on Manhattan’s West Side, it plays well to what tech tenants want.
The massive 28-acre development has already gotten commitments for space from companies like Intersection/Sidewalk Labs, a subsidiary of Alphabet.
Its goal is to be the epitome of “live-work-play” with wired innovation that includes air-quality monitoring and pedestrian counts. And tech appears to be buying in so far. 35% of all square feet leased in the complex as of Q1 2017 consists of TAMI tenants.Nearby High Line park (a mile-long park built on an old elevated rail line) and numerous restaurants and high-end retail are also major draws.
Boasting an emerging creative community, it offers a more affordable alternative to Manhattan, generally speaking. As demographics in the borough shift to a younger and creative talent base, residential construction has boomed, supporting a “live-work-play” environment. Transportation options are more limited than Manhattan, though. A number of areas still lack sufficient subway and bus access.
What’s the big picture here?
Many investors still long for the white hot 2013 and 2014 years, but that level of leasing activity was simply unsustainable.
Could lighter activity be the “new normal”? Only time will tell. But given current market fundamentals, the time for large tech appears to be now.
Whatever happens, the opportunity to innovate will remain in New York City as it remains a premier destination for tech-related business.
Research: Tiffany Ramsay | Editor: Michael Cronin