Tech Companies Are Moving To Brooklyn In Search Of Better Office Space Deals
Does a mass exodus of tech startups to outer boroughs mean a major threat to Manhattan CRE?
As real estate analysts busy themselves arguing what’s in store for commercial real estate industry under the Trump era, NYC tech startups are casually doing their thing—irreversibly changing the office leasing market. Without much noise or fanfares, tech companies pack up their laptops and relocate to Brooklyn.
Well, that was bound to happen sooner or later, right?
Office leasing is arguably the most traditional and stiff of all real estate areas. The amount of office space available in Manhattan is limited, and the existing space is hardly affordable. Furthermore, the long-term commitments and personal guarantees that landlords require from tenants represent the least suitable conditions for an innovative millennial-run tech startup.
Now, since office leasing in Manhattan doesn’t cater to their needs, more and more tech startups, as well as established companies, are opting to boycott greedy Manhattan landlords and moving to outer boroughs. Granted, the itinerary already exists—first stop being, of course, Brooklyn.
Several startups, including goTenna and Honeybee Robotics, are settling in the so-called Brooklyn Tech Triangle—DUMBO, downtown Brooklyn and the Brooklyn Navy Yard.
Agorafy platform data shows that the median asking rent in there is $46 per square foot—half of what Midtown South office spaces are asking. No wonder that, according to Crunch Network, “tenancy in Brooklyn Tech Triangle grew 22 percent in just three years.”
Other top destinations for the office space seeking companies are Bushwick and Williamsburg.
Livestream, for example, moved their headquarters from Chelsea to Bushwick, to a 45,000 square foot-space. In their corporate announcement, the company sort of instigated its tech peers to follow suit: “We’re confident that all of the old factories surrounding our new space will one day be filled with amazing tech companies.” Hear, hear.
If other tech companies answer the call, Manhattan office market might experience somewhat of a blow. This isn’t some small group of business geeks we are talking about—demand for office space by tech companies currently represents solid 25 percent and, naturally, will only grow in the future. Last year, PivotDesk reported a 300 percent growth in request for Brooklyn office space from 2014 to 2015. This exactly the opposite of what’s currently happening to the office demand trends in Manhattan’s CRE submarket. According to JLL’s managing director Cynthia Wasserberger, “[In Manhattan,] there just isn’t much demand.” Well, this sort of thing tends to happen when you manage to drive off one quarter of your potential tenants.
For Brooklyn submarket, on the other hand, this trend means two things. First, there is a drastic increase in commercial development projects—the most hyped example being Williamsburg’s 25 Kent building. Second, as the future office tech hubs are being constructed, tech companies are satisfying their current space need by taking over industrial buildings and turning them into cool offices with exposed brick walls.
The only question remaining is—how long before a Williamsburg corporate address becomes a must-have for a respectable tech company?
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