Younger firms are driving office leasing in the city
Taken from Crain's New York, October 11, 2021
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The share of young firms leasing office space in the city has skyrocketed, driving down the average age of businesses that are signing deals to 27 years old, down from 29 years in 2019, according to data from Newmark.
Demand for space from tenants that have been in business for less than 10 years grew by 514% during the pandemic, compared with 226% in 2019, with some of them leasing 10 times more space than they occupied in 2019, the report said.
“I kept coming across companies I’ve never heard of going from 20,000 square feet to 60,000 square feet,” said David Falk, president of Newmark’s New York tristate region. “It wasn’t just the Googles and Facebooks of the world.”
Those deals were driven by tech companies such as Alloy, Freshly and DailyPay, which have all grown by more than 1,000%, and Remarkable Foods, Fubo TV, Affirm and Cashapp, which quadrupled their offices. Noom signed a sublease for 113,000 square feet at Brookfield’s 5 Manhattan West in the fall of 2020.
The expansions are thanks to rapid growth and hiring among these businesses, which have resisted much of the pandemic’s damage to the city’s economy.
“Their business has done quite well over the last year,” Falk said. “They started at an opportune time to look at real estate and move to a better building or get better terms or flexibility.”
They’re responsible for pushing the office market out of 15 months of negative absorption, when more space was given up than was leased. In Midtown South, where most of these companies are, that figure turned positive during the third quarter, with net absorption of nearly 433,000 square feet.
The overall number of tenants in the technology, advertising, marketing and information space looking for new offices grew from 107 in 2019 to 132 as of last month.
Companies including Remarkable Foods, Cashapp, Splice and Twitch have grown out of coworking space and expanded into their own offices. TikTok was previously operating out of a WeWork at 1460 Broadway but relocated to a 232,000-square-foot, seven-floor office at the Durst Organization’s 151 W. 42nd St. during the spring.
Since the start of the pandemic, more than 31% of emerging tenants’ leases, however, were subleases, compared with 24% of deals signed by emerging tech firms. They were able to scoop up office space in newer Class A buildings for a discounted price.
“These tenants can now get better buildings at reasonable prices with flexible terms,” Falk said. “Aesthetics are becoming more important to them.”