Tech Office Leasing in NYC Continues at Torrid Pace

Office leasing in Manhattan by tech companies exceeded 1 million square feet for the ninth consecutive year, according to CBRE.
Nicole LaRusso, director of research & analysis for the Tri-State region, CBRE
Nicole LaRusso, director of research & analysis for the Tri-State region, CBRE

Office leasing in Manhattan by tech companies exceeded 1 million square feet for the ninth consecutive year, hitting 1.6 million square feet through the third quarter, according to CBRE. The data comes from the company’s latest annual Tech-30 report, which measures the tech industry’s effects on office rents in the 30 leading tech markets in the U.S. and Canada.

Demand from tech companies in New York City remains robust, with over 1 million square feet of active requirements, more than 20 percent of the demand for spaces of 50,000 square feet or larger,” Nicole LaRusso, director of research & analysis for CBRE’s Tri-State region, said in a prepared statement. “Supply remains limited, which combined with strong demand from start-up, mid-sized and the most sophisticated tech companies, makes market conditions favorable for landlords.”

The driving force behind this kind of demand, nationwide as well as in New York, is of course tech job creation. New York City has seen 12.4 percent growth in tech jobs over the past two years, which followed a 25 percent increase during the prior two years.

Colin Yasukochi, director of research and analysis for the San Francisco Bay Area, CBRE
Colin Yasukochi, director of research and analysis for the San Francisco Bay Area, CBRE

And this has shown up in rents, according to CBRE: “Despite an overall citywide rental rate decline of 1.4 percent from the second quarter of 2016 through the second quarter of 2018, technology tenants are willing to pay higher rents in desirable Manhattan submarkets.”

For example, the supply-constrained Midtown South submarket remains the most desirable location for tech companies in New York City, pushing tech taking rents to an average of $88 per square foot as of the second quarter of 2018, a 27 percent premium over the overall Midtown South average taking rent.

In New York, where tech companies are finding it harder to find space in Midtown South, we’ll continue to see migration of the tech industry across Manhattan, especially Downtown and into Midtown’s submarkets proximate to Midtown South,” LaRusso predicted.

Notable recent tech leases in New York include Riskified solidifying its temporary lease at 220 Fifth Ave. and aiming to eventually occupy three full floors for more than 27,000 square feet, in the Class B building. More recently, SeatGeek took 72,800 square feet across four full floors at 902 Broadway, which it will occupy as its new headquarters, starting next summer.

Same trends, national context

Eight of the Tech-30 markets posted rent growth of 10 percent or more between the second quarter of 2016 and the second quarter of 2018, CBRE reported.

Interestingly, the top four tech headquarters markets—the San Francisco Bay Area, Seattle, Boston and New York—are feeding each other, with cross-market expansion between them accounting for about 14 million square feet. New York especially has benefited from this phenomenon, with major tech companies based in the Bay Area, Seattle and Boston taking 4.5 million square feet of office space in New York over the past five years.

As space availability in top tech submarkets continues to tighten, we expect large tech companies to continue to expand outside their headquarters markets—including further into secondary and even tertiary markets. Large tech company expansion into smaller markets will help foster innovation clusters, further boosting job creation and creating additional office demand,” Colin Yasukochi, director of research and analysis for CBRE in the San Francisco Bay Area, said in a prepared statement.

CBRE noted that the high-tech software/services industry accounts for one-fifth of all leasing in the North American office market.

Images courtesy of CBRE