Since Google first entered the Meatpacking District in 2005 with its lease at 111 Eighth Avenue and its latest deal to buy the Chelsea Market building next door for $2.4 billion, the neighborhood’s growing boutique office market has exploded.
Developers looking to cash in on the “Google effect” have built and are working on a number of boutique office projects in the supply-constrained submarket, chasing asking rents that have climbed as high as $200 per square foot.
But even as developers add hundreds of thousands of square feet of new space to the neighborhood, the added inventory just can’t keep pace with Google’s voracious appetite.
The Meatpacking District will see more than 1.1 million square feet of new supply added since the development wave started in 2014 and the end of 2019, according to data from JLL. (The firm marks the neighborhood’s boundaries as everything west of Eighth Avenue to the Hudson River, between Gansevoort and West 16th streets.)
Some of the new ground-up or repositioned properties include Vornado Realty Trust and Aurora Capital’s 61 Ninth Avenue, Romanoff Equities and Property Group Partners’ 860 Washington Street, RockPoint Group’s 412 West 15th Street, and William Kaufman Organization’s 2 Gansevoort Street, all of which have attracted well-capitalized tenants.
While Google’s exact footprint in the neighborhood is unclear, it easily occupies more than the new supply total, and by some estimates it may have more than double. The internet search giant’s parent company Alphabet has leased nearly 665,000 square feet in just three buildings: Chelsea Market, 85 10th Avenue and at Pier 57 since 2010, according to JLL.
The company’s footprint at 111 Eighth Avenue, which it bought for $1.8 billion in 2010, is somewhat of an industry secret, as Google’s quietly bought existing tenants out of their leases at the 2.9 million-square-foot behemoth to give it more space.
Conservative estimates put its spread there at close to nearly 900,000 square feet, but on the high-end sources said it could occupy as much as 2 million. That means that even though the neighborhood is one of the most active submarkets for new development, new supply can’t keep up. And it’s having an impact on rents.
“The Meatpacking District commands some of the highest asking rents we found in Manhattan,” said Craig Leibowitz, a director in JLL’s New York research office. “Google’s historical and continued expansions in the Meatpacking Districts underlie its overall desirability within the tech sector and other industry segments as well.”
Average starting rents in the neighborhood were $128 per square foot last year, a 68 percent premium over the average for Midtown South, JLL’s data show.
That premium was just 16 percent back in 2014 when new buildings started adding much-needed supply to the area.
Other industries like insurance and finance firms, which are more willing to pay top dollar than other tenants, have moved into the neighborhood and helped push up rents.
And Google’s shown that it will snap up space wherever and whenever possible. Back in 2015, the company inked a deal to lease 250,000 square feet at RXR Realty and Youngwoo & Associates’ Pier 57, and just announced plans to take another 70,000 square feet.
The company is also taking more than 200,000 square feet at RXR’s Starrett Lehigh building on a short-term basis until the pier is ready in late 2019.