NEW YORK CITY—Businesses looking for office space in the nation's hottest tech markets, including Manhattan, should expect to pay a hefty premium, according to a new research report by CBRE Group.
In Manhattan, tech leased 1.2 million square feet from 2012 through June 2015, with Midtown South accounting for 54% of that leasing. Due to limited availability in Midtown South, where space larger than 10,000 square feet will be limited in availability for another three years, tech companies are being pushed into other markets such as Downtown or Brooklyn, with some larger firms taking space in Midtown.
From 2012 to 2014, Manhattan saw a 23% increase for tech job growth. Overall, Manhattan ranks sixth nationally in tech job growth.
“New York continues to be a magnet for the country's top talent, allowing technology firms here to capitalize on the availability of the most sought after programmers, developers and engineers,” says Sacha Zarba, EVP of CBRE's technology and media practice group.
At 11%, Midtown South ranked 17th of the top tech submarkets in each market in terms of office average asking rent growth from Q2 2013 to Q2 2015. Overall, Manhattan ranked 24th in net absorption growth over the same time period.
CBRE's report, which analyzes the top 30 tech cities across the US and Canada, showed an aggregate average asking rent premium of 11% across all 30 markets—a number that jumps significantly higher in the hottest tech submarkets, including Santa Monica, which had the second-highest average asking rent premiums in North America, between Boston's East Cambridge at 87% and Mountain View (Silicon Valley) at 73%.
The high-tech software/services industry has created 730,000 new jobs since 2009 and was the leading driver of US office market demand, accounting for 20% of major leasing activity, through Q2 2015.
“The high-tech industry is directly supported by consumer demand and a growing number of high-tech integrated businesses, which should keep the industry strong in the years ahead and provide further support for office markets in the tech-thirty,” says Colin Yasukochi, director of research and analysis for CBRE. “Commercial real estate investors must be mindful and have realistic expectations about this historically volatile industry underpinning the health of many 'tech-thirty' office markets.”
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Rayna Katz
Rayna Katz is a seasoned business journalist whose extensive experience includes coverage of the lodging sector, travel and the culinary space. She was most recently content director for a business-to-business publisher, overseeing four publications. While at Meeting News, a travel trade publication, she received a Best Reporting award for a story on meeting cancellations in New Orleans during Hurricane Katrina.
