Northern edge: Midtown lures Midtown South’s tech tenants
“Shazam!” may have been what landlord David Brause said last week when he signed Shazam Media Services, maker of the popular music identification app, to his Midtown building.
The technology firm signed for more than 9,000 square feet at 52 Vanderbilt Avenue, a 190,000-square-foot tower between 44th and 45th streets. Previously, the company rented an executive suite nearby, for which rents were not available.
But the reasons for Shazam’s lease in the somewhat stodgy Grand Central submarket – the CEO lives in Connecticut, and commutes via Grand Central – are a symptom of what’s happening to tech firms overall. They are growing up, and adjusting their real estate needs accordingly.
The firms that looked for hip neighborhoods and loft-like space (that even sometimes had a slide connecting floors, as tech behemoth Google famously has in Its 111 Eighth Avenue space in Chelsea), are privileging functional spaces and cheaper rents ahead of slides and free sodas. They want accessibility to bedroom communities, not to bars.
“Tech tenants are beginning to push out of [Midtown South] in search of value,” said Nat Rockett, executive vice president at Cushman & Wakefield, because of the “rapid rise in rents.”
And more mature firms are also making more permanent commitments to space. Shazam, for instance, previously eschewed a direct lease, but now, as revenues grow, the company was ready to sign for five years, said Brause, president of Brause Realty.
Moreover, many tech firms have been priced out of the Midtown South Mecca they created, he said.
“These tenants, they are now being asked to pay $70 a square foot in the Flatiron, and they went to Midtown South for the rents,” he added.
In fact, Brause Realty’s Union Square building, 41 Union Square West, which historically had asking rents far below their Midtown properties, now boasts the highest rents of any building they own, commanding prices as high as $80 a square foot on top floors.
“It’s at the top of our portfolio now,” he said.
Meanwhile, at 52 Vanderbilt, a venerable address just off of Park Avenue and right next door to Grand Central Terminal, rents are only about $50 per square foot, Brause said.
Proximity to Madison Avenue is important as well, noted Tom Harari, an SEO manager with iAcquire, an SEO and digital marketing agency based on 44th Street in Midtown.
“A lot of our clients are big ad agencies,” traditionally on Madison, in Midtown, he said. “Being close to 42nd street makes it easy to get back and forth.”
In June, another tech firm, Socialflow, signed at 52 Vanderbilt, also fleeing the so-called “glow of Google,” which has sent Midtown South rents up 23 percent year-over-year, according to a second quarter report from CBRE. Socialflow, a social media optimization platform, took the whole 9,275-square-foot 12th floor, and was previously based at 475 Park Avenue South, in the Flatiron District.
Likewise, earlier this year, social media company Alloy Digital left 151 West 26th Street for 498 Seventh Avenue in Times Square, and tech giant Yahoo ditched any pretensions of hipness when it inked a deal last May for space at the New York Times building, at 242 West 41st Street, according to previous reports.
And while median rents for Class A space in Midtown remain higher than those in Midtown South, Class B office rents recently eclipsed those in its southerly tech magnet neighbor, as The Real Deal reported. (Median Class A rents in Midtown can be skewed higher by the very expensive spaces in buildings like Solow’s 9 West 57th Street and Boston Properties’ GM building, where asking rents routinely top $100 per square foot).
In May, a study by the Times Square Alliance – admittedly, a group with an interest in being bullish – showed that tech firms had signed nearly 90 percent of the leases in that submarket in the previous 18 months, as The Real Deal reported. Firms may have now been pushed east from the flashy ’hood.
The thinking is, “if we’re going to pay a lot, [we] might as well be in a practical place,” Brause said. Both sides of Midtown are closer to commuter trains such as Metro North and the Long Island Railroad, than Midtown South.
But perhaps the appeal of Midtown is not just office rents, but a larger financial calculus. It is, after all, highly accessible to Connecticut – a place that executives will naturally gravitate to as they age, for tax reasons.