Technology companies have transformed Manhattan's Midtown South neighborhoods such as the Flatiron District, Chelsea and SoHo into the cool office locale. These days, other sectors are ramping up their presence.
Continue Reading Below
The share of new leases signed by tech firms in Midtown South dropped significantly in the first half of this year as more traditional companies from sectors including cosmetics and financial services continued to expand and relocate in the area, according to analysis from real-estate services firm JLL.
Tech firms represented 13% of new leases signed in Midtown South the first half of 2017, compared with 35% for the same period last year and 48% in 2015, according to JLL.
Average asking rents in Midtown South rose 8.8% in the second quarter to $76.66 a square foot. Midtown's average asking rent was $75.78, according to JLL.
Tech remains a major presence in these neighborhoods with giants such as Google, a unit of Alphabet Inc., and Facebook Inc. continuing to expand. But non-tech companies are increasing their footprint because of the broad appeal of these neighborhoods to younger workers, said real-estate analysts, brokers and building owners.
Aetna Inc. is among the latest drawn to the area, announcing plans on Thursday to move its corporate headquarters and 250 jobs from Connecticut to 61 Ninth Ave. in Chelsea by late 2018.
Continue Reading Below
"We think it's more than just wanting to hang with the cool kids," said Tristan Ashby, director of New York research for JLL. "These more traditional corporations have realized that they are competing for the same talent as Google and Facebook. The candidates they want to hire don't commute to Grand Central."
Bermuda-based insurance company Argo Group signed a lease this year to relocate and expand its New York City offices from a 17,000 square-foot space just north of Houston Street to a 48,0000 square-foot office at 413 W. 14th St. in the Meatpacking District. MAC Cosmetics also signed a lease to move from smaller SoHo offices and take about 86,000 square feet at One SoHo Square, a redevelopment in the Hudson Square neighborhood.
"Argo was one that shocked the market," said Paul Amrich, vice chairman of real-estate services firm CBRE Group Inc., and part of the team representing the building owners in the Argo deal. "They were like, 'Wait, insurance in the Meatpacking District?' But we have seen more and more of that occurring."
For Argo, there were few places in the city that could offer the "feel" and environment they found in the company's current office near SoHo and the new Meatpacking District location and provide the amount of space the company needed. Its New York office is its fastest-growing location, with the digital team representing the largest portion of jobs there, said Mark E. Watson III, Argo's chief executive.
"There weren't that many places in the city that had the amount of square footage we were looking for, unless you want to go into very large building," Mr. Watson said. "And that's not who we are."
Financial services firms looking to tap into the pool of technology labor have been increasing their presence in Midtown South as well. Capital One Financial Corp. signed leases in the first half of 2017 for space around the Flatiron District totaling 130,000 square feet, according to JLL. Baltimore-based investment manager T. Rowe Price Group in April announced it would house its new Technology Development Center at 233 Park Ave. South, also home to Facebook and BuzzFeed.
As the Midtown South market continues to attract more established companies, commercial real-estate owners have poured money into the area's properties. Stellar Management, which owns One SoHo Square, has almost completed a redevelopment of the early 20th century property that includes additional penthouse space, terraces and rooftop gardens. Orda Management Corp. oversaw the $135 million repositioning of 233 Park Ave. South, adding roof gardens, a courtyard, bicycle parking and new mechanical systems.
"You are seeing traditional midtown users move into Midtown South because they are getting the level of services and quality of space they are used to in Midtown," said Ryan S. Jackson, principal of Stellar Management.
Upgraded buildings in addition to the submarket's limited availability of space has increased prices and led some newer tech startups to look for space outside of Midtown South when they expand. But the rise of companies outside the tech center hasn't diminished industry's presence. Some of these nascent companies are opting to remain longer in co-working spaces, such as those operated by WeWork Cos.
"What we are not seeing in the traditional model is what is behind the scenes of the behemoth called WeWork," said Jay Caseley, executive managing director at real-estate company ABS Partners Real Estate LLC. "They are successfully capturing many of the startups we have accommodated in recent years. I think the statistics are a little askew."
(END) Dow Jones Newswires
July 02, 2017 15:23 ET (19:23 GMT)