Long-Dormant Tech Firms Start To Make A Stir In Office Market

The comeback is officially on in the New York City office sector, with the most active leasing market in three years being fueled largely by private equity firms and hedge funds. 

The resurgence has happened without the help of technology companies, which have been noticeably absent from the list of the biggest office leases signed in the city in recent years. But landlords and leasing brokers say that could be about to change.

“The technology firms are starting to reengage in the marketplace a little bit,” BXP Senior Vice President of Leasing Heather Kahn said at Bisnow's New York Office and Workplace Conference Wednesday. “We’ve all noticed that the tech market has been missing for the last couple of years.”

Several office owners and brokers speaking at the event, held at Rockefeller Group's 1221 Sixth Ave., referenced OpenAI's just-signed 90K SF lease in SoHo as a sign that tech's days as a significant driver of new office leasing demand are about to return. They also pointed to Amazon's declaration that it would require most workers to be in the office five days a week, as well as Dell Technologies' push to do the same a week later.

“We’re seeing green shoots in tech,” Savills Vice Chairman Scott Vinett said. “You see the OpenAI deal. We’re starting to see other folks in that same asset class looking for space now.”

Just as the event was beginning, The Real Deal's Lois Weiss reported that Google renewed its 300K SF lease at 85 10th Ave. in Chelsea. 

More than 9M SF of leasing activity occurred in Manhattan in the third quarter, the most since 2021, according to Savills. Almost half of the quarter's office leasing was taken up by finance, insurance and real estate tenants, according to Colliers, compared to technology, advertising, media and information companies at 16%.

Vinett said traditional media and large ad agencies like Condé Nast, WPP and Publicis are still looking for sublease deals as they remain in cutback mode. 

“They’re just over-officed and trying to rightsize right now,” he said. 

But the biggest reason that, as Cushman & Wakefield Executive Director Paige Engeldrum put it, “the market feels great right now,” is the growth of private equity firms and hedge funds. Blackstone, Ares Management and Bridgewater Associates have all signed large deals in recent months.

While many of those companies have been among the most aggressive in mandating office work, the economy has also been good to the titans of the capital markets, which allows them to commit to longer, bigger office leases.

“Companies' earnings drive space needs,” Kahn said. “When companies are doing well, they’re hiring people, and they have a demand for space when they’re hiring people. The financial industry, particularly the private equity side of things, has been off the charts, and look at what’s happening. They’re leasing space.”

That same driving force is why ad and media agencies are looking to find ways to give up their space. Warner Bros. Discovery wrote down $9B of its assets' value in August, and a month later it signed corporate events space and flex office provider Convene to a 72K SF sublease for a floor of its spread at 30 Hudson Yards.

“Some of the media companies, they’ve had a very challenged reporting environment over the last 36 months, and what are they doing?" Kahn said. “They’re shedding space, they’re laying off people, they’re not returning to office as robustly as some of the other organizations are out there.”

The space Convene is taking over on the 24th floor of the skyscraper was already the entertainment company's conference space, allowing for a lower-cost buildout for a new event space expected to open in July, Convene Head of Real Estate Brian Holland said onstage.

“That’s 72K SF of static conferencing space for WBD and they’re paying triple-digit rents on it,” Holland said. “So we’re helping solve a problem for them, and they’re in turn helping us create a product that is significantly cheaper to build.”

Finance's dominance of the leasing market has shown up in the performance of its preferred locale: Park Avenue. The corridor has an availability rate of 8%, and large blocks of space in the market are dwindling. It's already started to have a trickle-down effect.

“Madison Avenue has become the beneficiary of Park Avenue, tenants who don’t have the ability to lease space on Park Avenue are coming to Madison Avenue, so pricing’s up 12% year-over-year,” Vinett said. 

Part of why Park Avenue has become the most coveted office market in the city is because it offers a one-seat commute from the Metro North and Long Island railroads. But one factor that shouldn't be overlooked is its look: the dramatic canyon of buildings, the tree-lined median — these are part of what makes people not mind coming to work, Kahn said.

That's why some corridors that have a similar commute are still seeing availability rates north of 20% and commanding far lower rents.

“You walk up the avenue, there’s trees, it’s double-wide, there’s lots of light, it’s quite clean, it’s not cluttered with scaffolding,” Kahn said. 

She added that the competition on Park Avenue will start to force activity to nearby, less popular corridors because tenants “won't have another choice but to venture off.”

“We’re looking at [Lexington Avenue] where we have two buildings that are just next to Park, and it’s quite a different experience sometimes in terms of the inquiries and where we’re seeing pricing,” she said. “And you think to yourself, ‘Well what’s the difference?’ But truthfully, sometimes if I walk up Lex, it’s a big difference.”