Tech Firms Gobble Up Office Space, Outperforming Fintech Companies
Tech has unseated finance as the top leasing industry in New York City for the first time, underscoring its growing influence on local market fundamentals.
NEW YORK CITY – Tech has unseated finance as the top leasing industry in New York City for the first time, underscoring its growing influence on local market fundamentals. These high-growth companies remain attracted to New York City with an eye for talent amidst tightened labor market conditions, nationally, Craig Leibowitz, senior director of New York research, tells GlobeSt.com.
There are approximately 319,000 tech companies in the broader New York City metropolitan area, quietly offering the largest tech workforce in the country, a 10.8 percent larger workforce than the second-ranked Silicon Valley and San Francisco area, he cited.
Record-setting demand by the tech industry allowed its share of aggregate leasing activity to nearly double from 11.3 percent in 2018 to 19.6 percent in 2020. Class A properties captured 93.9 percent of tech activity, which is unsurprising because tech companies have been primarily attracted to modernized offices.
This has helped to drive an increasing dislocation in performance between the Class A and Class B market segments. The proportionate share of leases signed at Class A properties has gradually risen since 2012, reaching a record of 82 percent in 2019. By comparison, the prior 20-year annual average was 57.4 percent. Leasing activity totaled 27.2 million square feet in 2019, a decrease of 8.8 million square feet from 2018, though the 22.3 million square feet of Class A activity outpaced the prior 10-year annual average, according to JLL data.
“Looking ahead, a few largely expansionary tech requirements are expected to land in 2020, while the traditional finance, legal and business services industries should comprise a comparatively sizable share of activity,” Leibowitz said. “Firms in each of these industries should continue to favor new construction, recently renovated and other Trophy-quality properties.”
Rent growth in the segment is expected to increase at a greater pace than the commoditized alternatives, which still comprise the majority of the Manhattan office stock. As a result, overall effective rents should remain near current levels, with select pockets of excess growth based on location and quality in each office market, according to Leibowitz.