Given its low vacancy rate, increasing rents and booming leasing activity, Midtown South – Manhattan’s self-proclaimed “Silicon Alley” – is known in the commercial real estate community as the darling of the office industry. But as large blocks of space get filled up and supply dwindles, the market now dictated by culture choice may shift to reflect the changing nature of real estate availability in the neighborhood.
During a mid-year press briefing by CBRE, the firm outlined the strengths and challenges of New York City’s technology sector and the role office space is playing in establishing their businesses in the borough. Brokers explained that while established businesses like Google, Facebook, Apple and LinkedIn are more capable of paying higher rents, young technology firms and start-ups looking to gain a foothold in the city may be soon be running out of options, leaving Downtown and certain parts of Midtown as alternatives.
But then again, there's a world outside of Manhattan, too.
Just yesterday, the New York Daily News reported that the Coalition for Queens and packaging company Plaxall submitted a proposal to the NYC Regional Council -- one of the 10 councils developed by Gov. Andrew Cuomo through the state's Empire State Development -- to convert Plaxall's old warehouse off Vernon Boulevard into a business incubator specifically for tech companies. The location could be perfect for a start-up or emerging business looking for favorable rents and easy access to their peers, given proximity to Cornell-Technion's new Roosevelt Island campus being developed directly across the river.
In Brooklyn, neighborhoods like DUMBO, the Navy Yard and Downtown Brooklyn are establishing themselves as the city’s new “Tech Triangle." Close by in Sunset Park, a 30-acre stretch along Third Avenue is also experiencing a renaissance of sorts. There's Industry City at Bush Terminal, a 17-building, 6.5-million-square-foot commercial complex along the Gowanus Bay, where asking rents for office space start at $20 per square foot here, compared to the $51.73 in Midtown South for 'A' product -- a much more affordable rate for companies looking for a) leasing flexibility and b) big, loft-like spaces that are becoming scarce in Manhattan. All the more reason for Brooklyn, Queens, the Bronx and Staten Island to shine.
With Midtown South's 5.3% vacancy rate and rising prices, it is only natural that a ripple effect will start to create waves into the outer-boroughs. As availability tightens (combined with space needs), tech companies need the infrastructure, and not a lot of the buildings in Midtown South are simply not big enough to house a company on one floor. That's where the vacant industrial/manufacturing facilities of Brooklyn, Queens and Bronx can come in to accomodate the jobs of tomorrow -- today.
In response to the rapid demand for companies that create content, sell products and provide services online, the city is actively taking a role in attracting and retaining tech businesses in the boroughs. Under the TechStars New York program, a startup accelerator initiative, approximately 486 digital start-ups have formed in 2007 that have received funding, and currently, there are well over 1,000 web-based tech start-ups that have applied in March 2012, up from 600 applicants in 2011, according to CBRE.
In addition, the city, in partnership with the Association for a Better New York, is rolling out a series of initiatives designed to expand broadband connectivity throughout the five boroughs to get hundreds of buildings wired, permitted and certified over the next two years to handle more digital services.
While the more established firms will continue to look toward Midtown South for their headquarters, I look forward to seeing great buildings like the Tastyee Bakery Complex and the Kingsbridge Armory come back to life with new innovative companies and people.
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