Rents in the tech-heavy Midtown South office market hit $62/SF in Q1—an all-time high. As Millennials come of age, they're showing that they have a totally different set of priorities than older generations. Here are three ways that's impacting the Manhattan office market.
1. Transit Hubs Matter Less
Colliers vice chairman Bob Tunis brokered the deal that first brought Google to 111 Eighth Ave in 2007. Bob says industry-specific districts are less of a thing on the island, except for in tech, where he says Google’s entrance was “like a boulder dropping into a pond.” The kinds of startups that have clustered near Google’s NY HQ in Chelsea aren’t flocking be near Grand Central or Penn Station (even with brand-new inventory on the way), he tells us. That’s not just because companies with a lot of young workers like to be around downtown nightlife and restaurants. Cushman & Wakefield chief economist Ken McCarthy says it’s also that those transit hubs taking folks to suburbs matter less to those companies.
2. Companies Follow Talent
Since 2004, employment growth in the city has outpaced the ‘burbs more than eight-fold, and Ken says we should expect more of the same. “It used to be that when a company moved, it was so they could be closer to the CEO’s house,” he says. A new report from Colliers points out that office rents in Midtown South hit a record high of $62/SF in Q1, but that’s not changing where young companies want to be. Last September, IBM made waves when it reportedly dropped $100M to open its Watson artificial intelligence division at 51 Astor Place, one of the only significant new office buildings to open in the Midtown South market in the last five years. The alternative of housing it in a suburban office campus at their Armonk, NY, HQ wasn’t going to fly with the young workers IMB needed. Ken says a lot of them would just work for a competitor if it meant they didn't have to commute to the sticks every day.
3. Less Space Per Employee
Bob says “benching”—where startup workers line up along benches instead of at individual desks, isn’t just about fostering collaboration. He says leases he’s seen young startups sign are often in the 150 per employee range, versus more like 210 or 220 SF per employee for corporate tenants. So a lot of times, even if they’re paying a premium to be in Flatiron or Union Square, it comes out about the same, if not cheaper, than moving further afield and paying less—and you’ve still got room for that foosball table.
