The Real Deal New York

Is the tech boom being overblown?

TRD dissects the number of deals in the sector, where tech companies are locating and the brokers winning over Internet clients

November 01, 2012
By Adam Pincus

Is Manhattan’s tech leasing boom for real? That largely depends on how it’s defined. The problem is that the real estate industry is having a difficult time defining it.

That’s because in today’s world, where having an Internet presence is mandatory, nearly every company in the country could be classified as “tech” in some way. And classifications get trickier when the company is, say, a publisher that devotes serious capital to its website and is updating it throughout the day.

In addition, while many commercial leasing brokers consider the current tech leasing situation a boom because it’s brought an onslaught of new businesses that need space, by most accounts these companies still only represent a fraction of the market. For example, Colliers International shows that what it classifies as “computer service and technology” accounted for about 6.4 percent of all Manhattan office space leased in the first nine months of the year, while Cassidy Turley shows that deals classified as “information and new media” accounted for about 14 percent.

Nevertheless, those closest to the data believe that technology is not a flash in the pan.

“Yes, it is definitely real,” said Robert Sammons, vice president of research services at Cassidy Turley. But he added that it’s a dynamic market: “There are a lot of companies that are established, and then you have your start-ups. … Some of them will make it, and some will sell themselves to the Googles of the world and some will go under.”

This month, The Real Deal dissected the tech leasing craze that’s gotten so much attention lately to get a better handle on the impact it’s having on the commercial market. We analyzed approximately 70 of the largest tech leases signed over the last two years. The goal was to see what kinds of companies are taking space, what kinds of leases they’re signing and which brokerages are doing the deals.

We zeroed in on leases for companies located in Manhattan that focus on the Internet as their main source of revenue, such as the professional networking site LinkedIn, the retail giant Amazon and the social networking site Foursquare, among scores of others.

“For the most part, these are not large occupiers of space,” said Greg Taubin, executive managing director at Studley. “It’s not that they are taking over leasing in New York City, a 400 million-square-foot market.” Taubin represented social product development company Quirky in its lease at 606 West 28th Street.

Furthermore, tech leasing is being driven by shorter-term deals, which make tech leasing appear more active than an industry with longer leases, sources point out.

In addition, in our survey of the tech landscape, we also looked at the leasing brokers who are going after these tech deals and the tactics they’re using to pry clients loose from their competitors. By some tallies, there have been 1,000 start-ups created in the past five years — a fertile ground for agents generally boxed in by their firm’s senior brokers who jealously guard their turf.

“These younger customers are more open-minded about their [brokers],” said Jack Petrie, president of brokerage Office Lease Center. He was previously at CresaPartners New York, where he represented clients such as Amazon and Sailthru, which collects data to help companies understand their web users.

As a result, the area has become intensely competitive for broker business.

There’s no doubt that private companies investing here — like Google (which paid $1.8 billion to purchase 111 Eighth Avenue), and Cornell University and Technion-Israel Institute of Technology (which are partnering to build a $2 billion applied-sciences campus on Roosevelt Island) — will only boost local employment.

“Over the last few years, what we’ve seen over and over again is a commitment to make New York City a viable alternative to Silicon Valley, a place where true innovation occurs,” Google executive chairman Eric Schmidt told the Associated Press last month.

And over the past year, venture capital investors have poured in about $1.8 billion into local firms. Yet even as tech firms are growing and hiring, the industry is facing headwinds.

While venture capital funding over the past two years has been higher than in any period since 2001, funding over the last 12 months was down 22 percent from the previous four quarters.

In addition, the stocks of marquee brands like Google and Apple have performed poorly over the past month. And clouds are forming on the West Coast: In San Francisco, tech sublease space is starting to creep back on the market.

“We talk a lot about it internally,” said Tristan Ashby, research manager at Jones Lang LaSalle, but he was not seeing it here. “The news out of San Francisco seems to be that [leasing] has flattened.”

To get a better sense of what’s coming down the pipeline, we also looked at which tech tenants are currently on the hunt for more office space.

And we mapped out where some of the top tech entrepreneurs — like Facebook cofounder Sean Parker, Google cofounder Sergey Brin and Reddit cofounder Alexis Ohanian, among others — live in the Big Apple. Think Downtown and Brooklyn.

Digiterati deals

Brokers scramble for tech tenants

Where the techies reboot

 

  • http://www.buzztarget.com BuzzTarget

    It’s also worth noting that the “Silicon Alley Tech Boom” is characterized by hundreds of startups who are too small to rent their own office space, instead opting in for co-working spaces like General Assembly or New Work City. Even some of the more established startups (i.e. venture backed/funded) choose to stay in these co-working spaces as they grow to retain that connection to the larger tech community.

    Perhaps, an interesting strategy for some of the office leasing brokers would be to round up a few small startups for one large office space. Some startups already do that on their own; find a few like-budget companies and lease an office space together. Others have been entirely priced out of the Flatiron District (where most of the tech boom is these days) and have moved to the Garment District or DUMBO for cheaper office rents.

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