With the infrastructure in place for sustained long-term tech growth, developers and landlords are adapting strategies to respond to the new geography of demand. The creative model of office space – open floor plates, efficient layouts, and high ceilings – has become commonplace in many new developments, with developers adding amenities and outdoor spaces.
In 2015, TAMI (technology, advertising, media and information) tenants comprised 29% of the total square footage leased in the Manhattan office market, nearly double the 15% market share that TAMI accounted for in 2009. The sharp uptick in leasing activity directly corresponds with sustained tech and creative employment growth. New York City TAMI employment has increased by 29% since 2009, surpassing the employment during the previous tech boom in the early 2000s by 8%.
3-YEAR EMPLOYMENT GROWTH COMPARISON (2013-2016)
TAMI (Technology, Advertising, Media and Information)
Midtown South is firmly established as the epicenter of the tech and creative sector in New York City. TAMI’s sustained expansion over the past several years has eroded the supply of available space in the area. Midtown South finished the first quarter of 2016 with a vacancy rate of 4.4%, the lowest of any CBD in the United States.
The heightened demand for space coupled with the tightening vacancy in Midtown South has caused a surge in asking rents. Midtown South rents rose to a record- high $72.00 per sq ft in the second quarter of 2016, a 77% increase from 2010. Over that same span, the asking rent spread between Midtown South and Midtown, Manhattan’s traditional center of business, narrowed from 41% to just 13%.
The evolution of fledgling start-up tech firms into viable corporate entities has helped generate a large pool of TAMI tenants with the resources to pay top-flight rents for attractive and fully customized creative office space. This has caused a paradigm shift in the ways investors approach and evaluate real estate opportunities.
With the emergence of the tech sector as a main driver of the city’s economy, the local government has invested significant resources into developing the infrastructure necessary to cement and sustain New York City’s standing as a tech hub. The city has worked with Cornell University to develop a two million sq ft tech campus on Roosevelt Island, slated to open in 2017. Additionally, the city has invested $7.2bn to establish tech incubators in Grand Central and the Brooklyn Navy Yard.
Also, New York City is in the midst of a demographic shift towards a younger workforce. According to a recent report from the NYC Comptroller’s Office, millennials now represent the largest segment of the population in New York City, overtaking the baby boomer generation. The population of people aged 18-29 years old has grown by 132,000 from 2000 to 2014, with the technology and advertising industries seeing some of the largest rates of job growth among millennials.
While the New York City real estate market has already undergone major shifts as a result of the recent tech boom, the city is still in the early phases of a massive transformation.