Until the last decade, New York City had been considered a distant runner up in the tech world. Want to join the next cool billion-dollar startup? Go to San Francisco. Looking for a massive tech company that makes a ton of money selling something you have never heard of? Take a ride down Route 128 in Boston. Want to be a hard-charging finance professional or a famous actor? Come to New York!
This is old thinking. Sure, San Francisco and Boston have strong tech sectors, but the growing importance of New York City's thriving tech sector can't be understated. And the sector's impacts on the city's real estate are historic and profound.
New Tech City
Many pundits like to say that the tech industry’s young, creative workforce is attracted to New York City because of its culture, diversity, and public transport system. But the truth is, in this economic climate, the main reason this young, creative workforce is drawn to New York City is because there are jobs there. During the current economic recovery, job growth in the high-tech industry has been 33% - four times faster than the rate in the rest of the City’s economy at 8%. That's a lot of growth, especially when you consider the fact that the city’s tech sector employment adds 1,800 new jobs to the city’s economy each month. The tech job growth in New York has has actually been faster than in Silicon Valley, according to commercial real estate research from Jones Lang LaSalle. And, of the jobs comprising the NYC tech ecosystem, over half are within non-tech industries, like for example, web developer at an art gallery.
These are good jobs too. In fact, these new tech workers make 49% above the average city wage. And real estate is reaping the benefits. Residential rents in the top 10 largest U.S. metropolitan areas, where Internet and computer occupations play the biggest role in the local economy, rose 8% in the year ended June 2014, almost 40% faster than the gain in other metro areas. And since the recession ended five years ago, New York has added more tech jobs than any city except San Francisco, while Brooklyn has emerged as a tech hub in its own right. The trend marks a major turnaround from the early days of tech, when growth was centered in sprawling suburban office parks. The new tech hubs are urban, hip, trendy and at the center of it all. It's no surprise that as the tech scene in New York City continues to grow, companies are taking more space and impacting commercial leasing: In New York City, the TAMI (technology, advertising, media and information services) sector accounted for almost 32.3% of the total leasing activity throughout Manhattan in 2014. In fact, the tech sector in New York City is second only to the financial services industry in terms of leasing activity; and each year, the gap in activity between tech and financial services steadily narrows. Tech tenants like Google, Yelp and Squarespace are driving historic rents in hot tech neighborhoods like Midtown South, which continues to lead the nation as the tightest central business district.
Computers & Creators
Technology and technology-enabled businesses are driving economic growth in New York City. And while today's New York City tech ecosystem is established, what's astonishing is that it's still flourishing, led by disruptive companies changing the game in traditional New York City industries like fashion, finance and media. Internet technology has allowed a new generation of creators the ability to revolutionize industries and connectivity has become the oxygen of this new tech city. Without a doubt, the internet is the most transformative technology we will ever see in our lifetimes.
At the same time, barriers to entry have fallen, and the cost of starting and operating a business has been shrunk by the landscape of SaaS companies that offer affordable professional services. With technology, scrappy startups and first-movers can steal market share from large corporations that are slow to adapt. With increasingly better connectivity, the city's innovators are equipped to disrupt industries - and they are building, growing and launching the next Gilt, Etsy, OnDeck, Warby Parker, Birchbox, Bonobos, AppNexus, Vice Media, Buzzfeed, or Oscar Health Insurance. New York City is now New Tech City. And for landlords and property managers, it's become apparent that catering to this trend and investing in state-of-the-art infrastructure to enable the productivity of tech firms and workers across New York City is as critical as providing heat and hot water. Technology will be here for the long haul, but the landlords that do not invest in it may not be.