New York City Developers Ready To Adjust To Amazon-Fueled Tech Tsunami
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Amazon’s announcement that New York City will be home to its coveted HQ2 seems to have solidified the city’s future as a major tech hub. Now, real estate developers and owners are looking to figure out how to make that work for them and their buildings.
Although financial services companies remain the dominant employers in New York City, technology companies are gaining steam; in excess of 76,000 tech jobs have been added to the city since 2006.
Over the last two years, the sector has seen a 12% increase in local job growth, according to analysis from CBRE, with tech tenants taking more than 1.6M SF in Manhattan in the first three quarters of this year.
Amazon’s decision to plant half of its headquarters in Queens will have a profound impact on the demographics of the city, the types of tenants that are looking for space and the type of space they will seek. The ramifications on the city’s commercial real estate world will be discussed at Bisnow’s NYC State of the Market event Nov. 29.
“Even before this great decision by Amazon, Google had made a decision to keep expanding [and so did] Facebook. You’ve seen so many companies decide that you can’t achieve what you want to achieve if you’re not in New York City,” New York City Mayor Bill de Blasio said at a press conference to officially announce the pick earlier this week. “Amazon has now put the biggest exclamation point in the world on that.”
While the Bay Area remains the country’s tech capital, both in terms of job numbers and investment dollars, New York is gathering the strength to challenge that position.
Credit is often given to former Mayor Michael Bloomberg, whose administration was the driving force for the development of Cornell Tech, which sits between the future HQ2 and Midtown Manhattan. The location of the campus, and its place in the city’s deepening pool of talent, has been touted as a major draw for Amazon.
“The Amazon effect is we have been getting the brokers who are bringing tenants are now more aggressive in wanting to show the space,” said Himmel + Meringoff Properties principal Leslie Wohlman Himmel, who is speaking at the State of the Market. "It’s definitely going to help the leasing market. It will help pricing … but it’s going to take years."
Her firm first invested in Long Island City in 1986 and is in the process of leasing a former warehouse building at 21-07 41st Ave.
“The same thing happened at 111 Eighth Ave. [Google's New York headquarters]," she said. "With these enormous tech companies, it takes years for the result to be felt.”
Amazon’s decision reinforces the belief tech companies need to have a presence in the city to compete for all the talent possible.
“When you look at data of people in their 20s with bachelor’s degrees or higher … [New York] is an easier sell to a Big Ten grad,” Savills Studley Senior Managing Director Kevin Kelly said. “In the Bay Area the cost of living is so significant … [employers say,] ‘Go to New York City, maybe you have to have a couple roommates but it’s better than having to go to San Jose and commuting in traffic.’”
Kelly said Amazon’s selection of Long Island City is part of an ongoing shift in how major tech companies pick locations within the city to attract talent — and it will have an impact for decades to come.
“If I went back to 2000 and said, ‘What would be the perfect place to get someone under 34 with a bachelor’s,' it would have been Times Square," he said. "But if you ran the analysis today it puts you right where Google is now.”
Google’s operations in the city are based at 111 Eighth, a office building for which it paid $1.9B in 2010. It spent $2.4B to buy Chelsea Market from Jamestown earlier this year, and is taking around 250K SF at Pier 57. It is also reportedly planning to either lease or buy Oxford Properties' St. John’s Terminal office redevelopment, which will span 1.3M SF when completed.
All of those locations combined could potentially give it enough space for as many as 20,000 employees. Meanwhile, Facebook is said to be close to inking a lease that would give it the entire 870K SF office portion of 63 Madison Ave. in NoMad.
Last week, Twitter extended its lease at 249 West 17th St. for an extra five years. The growing concentration of prominent tech companies in the city will create an increasing cycle of tech talent, pushing up demand across all major asset classes, sources said.
Sage Realty Corp. CEO Jonathan Kaufman Iger believes it is now a matter of "when, not if,” New York will take the Bay Area’s tech crown.
Real estate developers, owners and managers need to be ready, he said, and start preparing to create the types of office space those tenants want.
“We are in a serious talent crunch. Talent retention is the name of the game,” he said, adding that amenities in buildings have become a major part of how companies lure employees.
While there is much attention focused on the tech giants like Amazon and Google, Iger said the smaller companies that are taking 5K SF and 6K SF now — but that could grow rapidly — are a major part of the office ecosystem that landlords need to cater for.
“More spaces are looking like Google today," he said. "Goldman Sachs has demolished two floors and put in a coffee bar … I think if you are not doing those things today, you are going to miss out on the companies today and in the future.”
Hear Iger, Himmel, Anthony Malkin, MaryAnne Gilmartin and others speak at Bisnow’s full-day New York State of the Market event Thursday, Nov. 29, at 866 United Nations Plaza.