Amazon got run out of town, but Gotham still has Google.
The tech giant has gobbled up large blocks of space in Hudson Square as it plans to double in size over the next decade. In addition to the tech giant, co-working spaces are continuing to change the leasing landscape.
“It’s a tale of two cities as WeWork and Google are acquiring space and the rest of the city is taking a wait-and-see attitude,” says Jeffrey Peck of Savills.
Co-working companies leased 904,186 feet in the first quarter. To capture tenants, Grant Greenspan says Kaufman is not only prebuilding spaces but making them more turnkey by installing high-end glass partitions, appliance-filled communal kitchens, desks and other furniture. This helps Kaufman achieve target rents in the mid-$70s per foot and even higher in the area around Madison Square Park.
There are no indicators that the market is slowing down, says Michael Cohen of Colliers International. Despite millions of square feet in new office buildings being developed at Hudson Yards, the World Trade Center, in Midtown and in numerous boutique office buildings, leasing hasn’t slowed. At this point in the cycle, Cohen explains, “We should have been building ourselves into a surplus, but the job growth staved that off in Manhattan.”
In fact, the 8.3 million square feet leased in the first quarter of 2019 was the second-highest total on record for the Manhattan office market, Cushman & Wakefield found. For the eighth quarter in a row, asking rents also rose, this time by $1 per foot to $73.28.
“While there are some concerns . . . things haven’t changed,” says Bruce Mosler of Cushman & Wakefield. “Profits are still healthy.”
The educated labor pool that is attracted to the city and its universities is why JPMorgan Chase is completely rebuilding its headquarters. Pfizer’s headquarters will move to The Spiral at Hudson Yards, as will AllianceBernstein through Neil Goldmacher of Newmark Knight Frank.
BlackRock’s decision to move to Hudson Yards, Deutsche Bank’s move to Midtown’s Columbus Circle and Disney’s plan to build a new headquarters tower in Hudson Square are all testaments to the labor pool, adds Josh Kuriloff of Cushman, who represented Pfizer. He says the growing industries are “pharmaceutical, finance, banking, entertainment and technology.”
To retain and attract young employees, businesses have to be where the talent wants to go — and that’s New York. “Relocations are no longer driven by where the CEOs live,” Mosler says.
While Midtown South rents have surged past those in the other submarkets and brokers shake their heads in wonderment as downtown’s B buildings are now the “cheap” alternative, the activity expected in Brooklyn has not yet panned out.
But changes around the city, including legislative proposals seen as anti-real estate, have raised eyebrows. “There are concerns from occupiers on the cleanliness and safety of the city and the taxes,” says Peter Riguardi of JLL. “There is a point it will make a difference and companies will leave.”
