The Year in Review

2012: The Year Tech Invaded NYC Real Estate

625 Avenue of the Americas, where eBay leased 35,156-square feet of space this year.

625 Avenue of the Americas, where eBay leased 35,156-square feet of space this year.

This past February, 10Gen, developer of the computer system database MongoDB, was in search of new office space, specifically in tech- and media-rich Midtown South.

The company needed a large open layout for its workers, with an option for more space to allow the firm to grow—plus an option to terminate. Unfortunately, the ultra-tight market did not offer what the company sought, and it was forced to look elsewhere.

“Before looking Downtown, they were going to look farther north, but not much farther north,” said Studley Executive Managing Director Greg Taubin.

The company settled on 229 West 43rd Street—the old New York Times building—taking 30,000 square feet with the option to eventually take 34,000 more. The building still has vacancies, but, according to Mr. Taubin, if it was located 20 blocks farther south, it would likely be full.

He’s probably right.

In what has increasingly become conventional wisdom for brokers and tenants alike, 2012 became the year in which tech and media companies truly invaded Midtown South.

The market has become so popular with technology and media companies that it now boasts the lowest vacancy rate in the country, said Jonathan Mazur, director of research with Cushman & Wakefield.

This year alone, Bravo Media set up shop at 145 West 28th Street, LBi expanded its offices at 11 West19th Street by 78,000 square feet and eBay planted a flag at 625 Avenue of the Americas, even as Google continued to settle in at 111 Eighth Avenue and Spotify searched for space at 620 Avenue of the Americas.

“I think that’s a terrific statement about the tech sector right now,” said Mr. Mazur, who estimated that 20 percent of the tech deals in Midtown South are expansions.

Those tech firms looking for space in Midtown South have stiff competition, as both Facebook and Microsoft are scouting locations for their New York headquarters and could do deals in 2013. The neighborhood’s intense desirability has had a strong effect on prices: asking rents were up 12.1 percent year over year in 2012.

“It’s up four times as much as Midtown, which is only up 3 percent year over year,” said Mr. Mazur, who added that hiring in the business services sector is also up.

The reality of Midtown South being “full” has directed lease-seekers like 10Gen to the fringes of that market. “We’ve seen the boundaries being pushed north to Midtown and farther Downtown,” said Mr. Mazur.

The recent technology and media rush in the Midtown South market cannot be compared to the similar surge the area experienced during the tech boom during the 1990s, said Robert Sammons, vice president of research at Cassidy Turley.

Many of the firms leasing space then—though backed by capital—fell apart without a product to sell or a proven business plan. Tech firms making the push into the area now have viable services and often have established offices on the West Coast, Mr. Sammons said.

“It’s a very different animal than it was in the late ’90s.”

Growing firms already situated in Midtown South that don’t have room to grow in the buildings they are in will postpone moving until they can find something that meets their needs in order to stay in the neighborhood, said Sacha Zarba, a senior vice president at CBRE. Smaller firms would rather reconfigure the space that they have than move out of the area. Larger firms are more likely to find adequate office space outside the desirable neighborhood.

“What some of these firms are really good at is raising money,” said Mr. Zarba. Tech-backing venture capital firms understand that office space and location have become an important requirement to retain and attract employees.

kstrauss@Observer.com

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