The Rise of the Tech Firm in NYC
Unprecedented things are happening in Gotham and it’s all tech. Tech firms, which previously stayed put in the Silicon Valley and left New York to the financial folk, have begun putting down roots in Manhattan and the ripple is being felt in the market.
In the first quarter of this year, technology, media and information firms took more space than financial companies. This is a first in the history of the NYC office leasing market and pricing is being turned on its head. Previously popular buildings are suffering from high vacancy rates, and previously less popular buildings are boasting sky-high rents. These days, you pay less in an iconic building like the Grey Bar Building (420 Lexington Avenue,) which is attached to Grand Central Station, than you would in a cool loft space in Union Square or in the Flat Iron district. Nice loft space in these downtown areas used to go for $30/s.f. Now, these spaces are commanding almost twice that.
What’s it all about, Alfie?
Think of it this way. Tech firms trend young, hip, entrepreneurial. Think 20-something millionaires in hoodies. Think Facebook’s Mark Zuckerberg. These Masters of the Universe don’t want to be in a stuffy building on Madison Avenue, jammed into an elevator with a bunch of suits. They want to be in cool buildings with big windows and high ceilings. They want converted loft or manufacturing space. They want to be with their own. And this is all happening in Union Square, the Flatiron District, the Meatpacking District, SoHo, TriBeCa and Hudson Square. These areas were always destinations for creative firms but now these areas are the epicenter of the burgeoning tech movement. As a result, vacancy is down and rents are up. Union Square, for example, now has the lowest vacancy rate of any sub-market in Manhattan.
The tenants in these areas include blue chip names like Google and Yelp, a variety of tech incubators, educational plays like General Assembly, West Coast power-houses who suddenly need to be in NYC and a host of companies you haven’t heard of yet, but probably will. These companies that are out to change the world have already changed the face of NYC commercial real estate.
In 2010, Google purchased 111 8th Avenue at 15th Street, a former freight warehouse, which runs all the way from 8th to 9th Avenues. Google occupies about half a million of the building’s total 2.9 million square feet and, in the past two years, has taken over 100,000 additional square feet. They’ve been buying out existing tenants where necessary – and they’re still hunting for more. This is the quintessential cool and colorful warehouse space where employees ride scooters around the office. It’s .com 2.0 but, unlike 1999, these firms seem poised for long term success.
Other popular technology companies [such as blogging platform Tumblr, which recently moved its office to 21st and Park in Flatiron, and Foursquare, which calls 568 Broadway (at Prince Street) home] are also contributing to the tech real estate boom. Interestingly, two of the techs biggest names, Facebook and Twitter, are currently occupying space near Grand Central, at 335 and 340 Madison, respectively – with Twitter occupying Facebook’s former space at 340.
Meanwhile, building owners who already own real estate in Midtown are working hard to rebrand their traditional buildings and turn them into spaces that the young, entrepreneurial firms will want. For example, take the Scribner Building at 597 Fifth Avenue. A few years ago, this building was all about financial service firms. Now, that market is struggling. So the owners are working hard to give the Scribner a new identity, christening it “SoHo in Midtown.” 292 Madison, a classic law firm building near Grand Central, changed their “pre-built” program, and built out several vacant floors with “tech” installations – high ceilings, open space, lots of glass – and sold out in months. Landlords are sensing the change in the air and are working hard to keep their buildings top of mind to this growing market.
It remains to be seen whether Facebook and Twitter’s move back up to Madison Avenue, which was previously known as the hub of the advertising industry, will spawn another wave of change. But for now, it seems that Midtown South and the cool neighborhoods that abut it are the places to be — and be seen.