New York City’s AI Hub Gambit Could Ripple Across Real Estate

New York is already home to hundreds of artificial intelligence startups, and Mayor Eric Adams thinks that’s enough to begin positioning the city as a global hub for the growing field.

However, it’s going to take more than a recently announced $3 million city plan to compete with the likes of Silicon Valley. Still, an AI industry boom in New York could have far-reaching effects on everything from municipal operations to office leasing to the siting of logistics hubs in the five boroughs. 

In other words — if we might pile on the cliches — it’s early days but the sky’s the limit.

First, that plan: In January, the Adams administration pitched a roadmap for establishing New York City as “the premier artificial intelligence capital of the world.” The biggest piece was a $3 million investment from the city’s Economic Development Corporation to create what the administration is calling the NYC AI Nexus, meant to stoke collaborations between startups and businesses that range in size from small to medium across a variety of sectors, to craft more AI-driven technology.

Beyond this roadmap is the infrastructure that’s already in place.  

“There’s a lot of really exciting things happening in New York that lend itself well to becoming an AI hub with the right resources and effort,” Jake Fingert, managing partner with venture capital firm Camber Creek, said. “New York City has some of the best colleges and universities in the country. There is a range of companies that have very deep engineering expertise based in New York City, and there’s an enormous population. It’s a very desirable place to be, so there’s a lot of factors that make New York City an attractive place for AI.”

New York City is already a top market for venture capital directed toward technology companies. VC consultancy Waveup placed New York second nationally to only Silicon Valley in 2023. 

The city is also already home to 2,000 AI startups as well as an existing talent pool of 40,000 workers with AI expertise and related skills, according to the EDC’s 2024 State of the New York City Economy report. Some of the AI firms operating in New York include AI video-editing startup Captions, ChatGPT creator OpenAI, and data analytics firm Palantir. 

In fact, it was OpenAI’s 90,000- square-foot office lease in October at the Puck Building in SoHo that brought speculation about New York becoming an AI hub out into the open. The company had been searching for such a spot for months in a bid to move beyond its San Francisco headquarters. It was one of several Al-related firms hunting for New York space as of the start of last year. A Cushman & Wakefield report then pegged the total demand at 1.7 million square feet. More recent CBRE (CBRE) research estimates AI-specific firms’ office footprint in the city at 1.5 million square feet. 

The number of AI startups in New York still pales in comparison to the almost 5,000 in the San Francisco Bay Area, according to Crunchbase data. The Bay Area has 61,497 AI professionals, according to coding education provider Nucamp. 

Still, the five boroughs have the potential to reach those kinds of figures. 

“New York is incredibly well positioned to become an AI hub with the right nurturing and resources,” Fingert said. “And that’s not just capital — obviously having capital available is helpful — but it’s also providing the right educational tools, technical assistance, and creating a holistic ecosystem where AI founders can come and view it as an attractive place to build their companies.” 

There is already a foundation to help turn New York City into a robust AI hub, said Winston Fisher, a partner with office owner Fisher Brothers. The city first needs more AI-focused initiatives from a variety of places. 

“Silicon Valley is what it is, but New York has demonstrated itself over the last 20 years as having a massive concentration of tech companies and startups,” Fisher said. “It’s building off of its success, not trying to establish itself.”

To really cement its position as AI central, New York City will need to establish a healthy ecosystem of incentives and regulations, as well as foster its already diversified workplace. It also needs to make a dent in solving its significant housing crisis, which will grow worse if more tech talent wants to live and work in the city, Fisher said. 

“If you have affordable housing, really strong infrastructure and reasonable taxes, New York will thrive,” he said. “The real estate community wants to solve the affordable housing crisis, and I also think you’ll have a lot of space.”

In terms of the housing crisis, city and state initiatives have already been put in place to incentivize developers to build affordable housing, including the City of Yes rezoning plan that passed in December and the state’s 485x tax abatement program, which dates from earlier in 2024. In terms of space, Fisher said there are areas of the city that lend themselves to energy storage and data warehouses. 

“There’s technical requirements that go with [building these places], but I really think that New York’s zoning policy and a collaboration with the real estate industry and the tech industry could find places or pockets in Long Island City or Jamaica,” Fisher added. “There are places in Lower Manhattan that would benefit from new and different forms of real estate development.” 

As the AI sector grows in New York, there will be increased need for office space that can house this talent pool in the city. 

“From a demand perspective, we’re seeing these companies behave like the overall technology sector,” Sacha Zarba, a vice chairman of CBRE and co-founder of the firm’s tech and media practice group. “What I mean by that is they’re being very smart about how they grow, about the type of capital and the amount of capital that’s invested within a specific space.

“They are being measured, limiting capex, making short-term commitments from a lease term perspective. So they are really being careful, not because New York is not validated as a market where they need to be, but because the anticipated growth trajectory is so high.”

This is a similar approach to how these companies behaved when they were setting up shop on the West Coast, and it can be a blueprint for New York.

As might be the city’s last technology boom. From the late 1990s through the first decade of the 21st century, a number of Internet-related companies opened offices in New York. A section of Midtown South even became known as Silicon Alley (get it?), and tech giant Google began leasing and buying up portions of West Chelsea in the early 2010s. Plus, the sprawling Cornell Tech applied sciences campus on Roosevelt Island — a successful city and private sector effort — started opening in 2017. 

The ingredients, then, are all there. It is just a matter of finding the right formula. 

“We are truly in the first inning of what I think is going to be not only a multiyear run, but it’s really the first inning of a new sector that’s forming,” Zarba said. “This is a sector that is going to reshape how we do everything, but it is also going to reshape how the technology sector itself plans for its real estate, its buyers, its headcounts, and where to grow. This is going to be the new engine that, candidly, redefines the technology sector, and not just in New York.”

Amanda Schiavo can be reached at aschiavo@commercialobserver.com.