New York City Real Estate Savors a Tech Boom

John Taggart/Bloomberg via Getty Images

Big technology companies are doubling down on New York City by adding millions of square feet in office space and creating thousands of new jobs, with few aftereffects from Inc.’s nixing of a Queens headquarters.

Alphabet Inc.’s Google last week closed a deal to lease 1.3 million square feet in lower Manhattan, part of Google’s plans to add 7,000 in staff to the city over 10 years.

Facebook Inc. is in talks to lease one million square feet of office space at 50 Hudson Yards, a skyscraper under construction on Manhattan’s far West Side, according to a person familiar with the talks. Uber Technologies Inc. and Amazon have been looking for large office space at the Farley Building, say people briefed on the matter. Part of the former James A. Farley Post Office will be used as a train hall for Penn Station.

New York is emerging as an East Coast hub for technology because of the size of its labor force, its extensive transportation infrastructure and the cultural and entertainment activities that come with a big city, analysts and real-estate executives said.

“New York has lured the talent, and now the employers need to set up shop to lure that talent,” said Kevin Egan, an executive at Oxford Properties Group, which is one of Google’s Manhattan landlords. “These tenants want to be here and need to be here.”

The city’s tech frenzy comes barely four months after Amazon stunned developers and others in the business community by canceling plans for a second-headquarters project in Long Island City, Queens. Some elected officials had criticized a government incentive package of as much as $3 billion to lure the retail giant.

Amazon’s abrupt reversal sent shock waves through the New York real estate community, with some suggesting that the company’s decision to bolt could discourage other major tech companies from considering the city.

Instead, interest among social media, e-commerce and ride-hailing companies has been intensifying. Many of these companies are willing to spend big dollars renting high-end Manhattan real estate, rather than the older office stock in Queens that Amazon was prepared to lease.

“A spat between Amazon and a faction of City Council is not going to prevent the continued tech boom of New York,” said Matthew Harrigan, chief executive of Company, a venture that manages a tech-centric serviced office building in Midtown Manhattan.

Tech-sector jobs have increased at a faster clip than the city’s overall job growth. The top tech-job categories, which include software publishers, internet publishing and web search portals, averaged 9.6% growth annually between 2009 and 2018 in New York City, according to economist James Parrott at the New School. That growth was almost four times as fast as the average annual private-sector job growth.

New York’s prominence as a global financial capital and center of fashion, advertising and marketing makes it attractive for tech companies looking to poach workers from these industries, analysts said.

“Social media companies have to sell ads to have revenue streams, and New York City is the advertising capital,” Mr.  Parrott said. “If you want smart people in advertising, you have to come to New York City for that.”

Tech companies have had a presence in New York City, but now they look eager to go bigger. Since 2015, Uber has more than doubled its office space in New York City to about 160,000 square feet, while Amazon has boosted its office space almost three times to about 800,000 square feet, according to CoStar Group Inc. Facebook’s office space is now at least three times as large as it was five years ago.

“A company like Facebook and others are expanding because they are running out of talent in Silicon Valley and San Francisco,” said Paul Leonard, a managing consultant at CoStar.

Technology, ad, media and information companies leased 74% more space in the first half of 2019 than they did a year earlier, according to Cushman & Wakefield PLC. That group of companies, known as the TAMI sector, leased space at a faster clip than the financial industry, which signed deals for 70% more office space.

In 2018, Toronto-based Oxford Properties and a partner bought St. John’s Terminal on Manhattan’s west side for $700 million, with tech tenants in mind. The former freight terminal, which Google will occupy, has floor sizes of over 100,000 square feet, high ceilings and views of the Hudson River, enticing features for tech and ad tenants, Mr. Egan said.

Oxford initially planned for a $2 billion development that would add abundant outdoor terraces and decks before landing Google. It is now redeveloping the property as the centerpiece of a campus in the Hudson Square neighborhood, where Google will ultimately occupy three buildings.

—Konrad Putzier contributed to this article.

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Source: Housing Trends Feed