From the September issue: In 2014, the leasing activity of TAMI (technology, advertising, media and information) tenants surpassed for the first time Manhattan’s traditionally dominant category — that of finance, insurance and real estate firms — 31.4 percent to 28.8 percent. For this month’s Q&A feature, we spoke to experts about the next wave of tech districts and the relationships between landlords and TAMI tenants. Our second web installment features interviews with Daniel Bodner of Kushner Companies and Eric Thomas of Cresa New York.
Vice president of leasing, Kushner Companies
What types of TAMI tenants are in the market right now? And how do factors like rent, space, location and amenities rank when it comes to those tenants’ leasing decisions?
The market is active with tenants of all sizes, and they’re being opportunistic — whether ahead of lease expirations or in search of expansion spaces. Talent retention and recruiting remain important factors — with a high percentage of the creative talent living in Brooklyn, companies continue to open their eyes to the borough. Companies want to be located in buildings and neighborhoods that offer a variety of amenities, including restaurants, fitness options and outdoor spaces. At Dumbo Heights we’ve worked closely with Jon Krieger at RKF to handpick just the right mix of retailers. We’ve also included a common roof deck, outdoor seating areas and first-class internet connectivity.
Brooklyn has made a big push for tech tenants. How do you see Manhattan competing with places like Dumbo or Downtown Brooklyn as they get more offices on line?
The market has evolved so much recently that I’m now noticing that people ask how Manhattan will compete with Brooklyn. Brooklyn is just scratching the surface in terms of its potential and ability to attract big-name companies to the borough. With rising costs of real estate, higher wages and a booming innovation-economy workforce, Brooklyn’s tech market will continue to grow.
Larry Silverstein has said that one of the reasons he stuck with Bjarke Ingels’ design for 2 WTC was because of its significant amount of outdoor space, which appeals to tech tenants. What other building trends do you see being dictated by the needs of the tech sector?
The demand for outdoor spaces isn’t specific to the tech tenant. With Dumbo Heights, we recognized this from the outset, and that’s why we’ve made public space such a focal point. Specifically, sidewalks widened through the city Street Seats program will provide both space for the neighborhood as well as a venue for our tenants to take the collaborative environment down to the street. To that end, we’ve also built out a shared rooftop. I think the market is finding a happy medium between closed offices and open floor plans, with the addition of breakout rooms, quiet rooms, phone booths, lounge areas, game rooms and other similar spaces.
Principal, Cresa New York
As a tenant’s broker, what do you make of the fact that leasing activity in Manhattan by tech, advertising, media and information tenants dropped 43 percent from the first quarter to the second quarter, according to Cushman & Wakefield?
There seems to be a slowdown in deal velocity for TAMI tenants across the board that I would attribute to a general cyclical flow in that sector. Venture- capital investors are waiting to see if there is a return on their investment. So there’s going to be a pause before they commit to additional space.
Where do you see the office leasing market headed in the next six months?
In New York, I represent Twitter, Oracle and Akamai Technologies, and I have subleases on the market for all three of those tenants. We are achieving 85 percent or 100 percent recovery, including transaction costs, on all of our clients’ subleases, in locations like Park Avenue South, the Flatiron District or Silicon Alley. However, I expect that recovery for subleases will be less as more come on the market and that there will be increased concessions. On Park Avenue South, there are more subleases than there have ever been, and they are on the market for longer than they have ever been, with asking rents in the $55-$58 a foot range. If this trend continues, you’ll see significant softening in the Park Avenue South area from Union Square to 34th Street, Chelsea and Flatiron District. I’m getting multiple calls and emails a day from leasing agents asking “can we get tours” with your tenants — more than I’ve ever gotten in my 16 years in the business. Tenants can be Downtown, or near Penn Station, and pay around $50 a foot. In the past, this happened at Hudson Square, which had a huge run-up in rents, after which tenants started to look elsewhere.
If leasing demand from TAMI continues to weaken, which neighborhoods are the best-positioned to withstand a slowdown?
Every client I represent is looking Downtown. Look at Mediamath at 4 World Trade Center, Condé Nast at 1 World Trade Center. Rents are 15 percent to 20 percent cheaper Downtown versus Midtown South. Downtown is not inconvenient in terms of commute, and it is more convenient if you live in Jersey City, Hoboken, Brooklyn or Staten Island. But we still have pushback from the high-level executives living in Westchester and Connecticut, because for them, working Downtown adds 15 minutes to 20 minutes of commute time.
What types of TAMI tenants are looking for space right now, and what kind of space are they looking for?
The mature TAMI tenants are doing better — there’s weakness in the mid-market firms who have only done Series A and Series B rounds of fundraising. Facebook is in the market. Samsung is in the market. Spotify will be in the market. As tech companies mature, they graduate from the loft buildings because of their drawbacks and constraints: the inefficiency of the many columns, low floor loads, antiquated base building heat, air conditioning and power systems, weird shapes, no good lobby, not enough bathrooms, not enough water.
How do you see Manhattan competing with places like Dumbo or Downtown Brooklyn as they get more offices on line?
Downtown Brooklyn looks like it is priced correctly, but other parts of Brooklyn are overheated. A lot of landlords in Dumbo are going to have trouble filling these buildings, which are more expensive than Downtown Manhattan. Unless it’s a specific type of company with a specific type of employee, like Etsy, which was born and bred in Brooklyn, you are going to have a hard time convincing a tenant to consider a move to Brooklyn. The price structure can be comparable to many parts of Manhattan, but once you go Brooklyn, you remove part of your pool of potential employees and increase total commute time by 25 percent. If it’s 400 people, that’s a lot of minutes cumulatively.
How do landlords size up the economic potential of start-ups that have little to no earnings history?
A landlord like Empire State Realty Trust, the owner of the Empire State Building, isn’t going to take on an unknown entity. They will not lease to a tenant who does not have some type of track record. Other landlords are willing to take on that type of tenant. WeWork works for companies that need to either grow quickly or shrink quickly. I’ve sent them several clients recently.