The Real Deal New York

Where to set up shop?

Start-ups are diversifying into new neighborhoods — and changing the office market
along the way
By Mark Maurer | October 01, 2015 07:00AM
Rendering of the Dumbo Heights complex, which is targeting tech tenants.

Rendering of the Dumbo Heights complex, which is targeting tech tenants.

Not surprisingly, as the start-up invasion spreads, fledgling companies are branching out and diversifying into new neighborhoods.

According to brokers, younger start-ups tend to plant their flags in the Class B buildings sprinkled from the Flatiron District and Chelsea to Soho, where 20,000-square-foot floor plates are prevalent.

But as firms gain momentum, they often triple, or even quadruple, their footprints in Midtown and Downtown, where more 100,000-square-foot space is available. But the Hudson Yards neighborhood could gradually become a haven for later-stage tech companies, sources said.

While it may seem counterintuitive, Brooklyn and Queens are still very much second-tier choices for tech firms. That is largely because those boroughs don’t offer the same kind of central commercial districts that Manhattan does.

Those trends, however, are already starting to change.

For example, last year Lyft, an Uber rival, signed a two-year lease in Long Island City with development and investment firm Jamestown at the Falchi Building. (Uber actually still occupies a 3,500-square-foot space in Long Island City, which it’s had for a few years.) And another Jamestown site, Industry City in Sunset Park, is one of several locations in that borough attracting tech and start-up tenants.

In July, that site landed a 55,000-square-foot, 15-year lease with media giant Time Inc.

Other large tech- and start-up-friendly complexes include Dumbo Heights, which is being developed by Kushner Companies, RFR and LIVWRK and Midtown Equities’ Empire Stores — both in Dumbo. The properties are now under construction and being leased up.

“If you’re a tech tenant touring Midtown South for more than 20,000 square feet, you’re definitely touring Dumbo as well,” said JLL’s Brittany Wunsch, one of the brokers who represented Uber in its recent Chelsea lease. “Dumbo Heights is at the forefront of the market there.”

Developers such as Toby Moskovits’ Heritage Equity Partners, LIVWRK and a Boston Properties-Rudin Management partnership are also targeting tech tenants for projects in Williamsburg, Red Hook and Brooklyn Navy Yard, respectively.

JLL’s Jim Wenk, who has represented Snapchat in its 60,000-square-foot lease at 229 West 43rd Street, said the big Brooklyn leases are still largely being signed by companies that have grown in the borough, like the news website Vice and the e-commerce website Etsy, though last year Uber checked out warehouses in Dumbo and Williamsburg.

Still, Wenk said even once the Brooklyn office market’s inventory grows, he expects 80 percent of occupants to be Brooklyn-based, with the remaining 20 percent relocating from Manhattan.

“A global company or brand that wants to pull talent from all five boroughs still wants to be in the primary borough,” Wenk said.

While there is pent-up demand in some neighborhoods, there is no cohesive commercial real estate market in Brooklyn, said Ben Waller of ABS Partners Real Estate.

“Right now, Brooklyn is seen as a lower-cost and creative option,” Wenk said. “The development [there] in 10 years will be state of the art, and that will provide some validity of the concept of more companies moving there.”