In recent years, some notable large corporations have been moving out of Midtown Manhattan, opting to put down their New York roots in office space outside what may be the world’s best-known central business district. Instead, they’ve found space in a variety of neighborhoods not traditionally noted for being business hotspots. From old-school media conglomerates to more recently crowned tech giants, big business is branching out in NYC, and some major buildings in Midtown are sitting mostly empty as a result.
Washington Square Park in Greenwich Village, New York
(pio3 / Shutterstock.com)IBM is one of the world’s largest employers, and has expanded from producing computers to developing cloud and cognitive technology. It has several NYC offices, and recently made headlines when it signed a deal to lease an entire WeWork space, at 88 University Place in Greenwich Village, between Union Square Park and Washington Square Park. For many decades an artistic hotbed, Greenwich Village will now be home to one of the oldest and most corporate of computing companies.
Its strategy of partnering with big corporations could help WeWork succeed, as it seeks to diversify beyond its exciting but less stable initial client base of freelancers and startups. Now that the company has shown it is able to offer office space for a very large and stable tenant, the stakes are also raised significantly in the face-off between a coworking approach to office space versus the traditional approach of companies renting or owning standard office buildings.
In addition to providing a clue to the future of WeWork and of a possible clash between coworking spaces and traditional office properties, IBM’s splashy move to the Village also highlights what appears to be a pattern of companies looking for work space outside the longstanding Midtown office hub.
One of the biggest of the new generation of technology giants has left Midtown to find a home at 770 Broadway, near Astor Place – just a few blocks away from IBM’s new coworking hub.
Previously located on Fifth Avenue, at 45th Street, Facebook moved into its Frank Gehry-designed offices in 2014 and occupies 185,000 square feet of the landmark Wanamaker Building, along with fellow tenant AOL and across the street from IBM Watson, the cognitive technology branch of IBM. The Wanamaker Building is owned by Vornado Realty Trust, which secured a $700 million refinance loan from Morgan Stanley in February 2016.
Entertainment conglomerates Sony and Time Warner have also left their flagship Midtown locations for less traditional locales, and the owners of those properties have been left scouting for replacement tenants who do want to be in Midtown.
Time Warner’s previous landlords have been struggling to find new tenants after Time Warner moved from 75 Rockefeller Plaza to Columbus Circle. Although the Time Warner Center opened in 2004, Time Warner itself only vacated 75 Rockefeller Plaza in 2014. And after only a few years at the Time Warner Center, the company will be moving its headquarters to 30 Hudson Yards, where it has purchased 1.6 million square feet of space.
The Rockefeller Plaza location underwent a complete interior renovation after the building was vacated by Time Warner. The landmark building is owned by New York real estate developer RXR, which initially received a $184 million loan from JPMorgan to start the renovation. With the three-year renovation complete, however, RXR is still seeking tenants to take over the 33-floor tower – and recently received another $24 million loan from JPMorgan to help buy time until the property is stabilized and cash is flowing. (The American Girl doll retailer did recently sign a lease for 75 Rockefeller Plaza, but it will be taking up only 6% of the building.)
In a big shake-up, Sony sold its historic building at 550 Madison Avenue in 2013, and in March 2016 headed to a hipper location at 11 Madison Avenue in what is sometimes called Silicon Alley. While Sony could have found another corporate glass-and-steel perch in midtown, it opted instead to move to the Metropolitan Life North building, now called Eleven Madison, a landmarked Art Deco building.
Meanwhile, 550 Madison’s current owner, the Olayan Group, plans to develop the building into upscale office space once again, with $570 million in financing from ING Capital (after the Chetrit Group’s luxury condo plan was scrapped). But in the meantime, no timeline has been announced for when the space will be ready for occupancy.
As some corporate giants make the move to locations that previously seemed to be off their radar, others have been there from the start.
Google, for instance, is continuing to expand its presence in the Chelsea neighborhood.
Rather than find space in Midtown, Google leased 150,000 square feet of space at 111 Eighth Avenue, near Chelsea Market, from Taconic Investment Partners in 2005. Google gradually took over the entire 2.9 million square foot building, buying the former Port Authority headquarters outright in 2010 for $1.9 billion. The massive red brick building sits almost exactly on top of one of the largest fiber-optic cable highways on the East Coast, making it a huge draw for one of the hottest technology companies.
Google’s appetite for office space in Chelsea is seemingly insatiable, however, and it has already leased another 250,000 square feet in the neighborhood’s new Pier 57 development, with completion expected next year, after leasing an additional 180,000 square feet in a former Nabisco cookie factory at 85 Tenth Ave., adjacent to 111 Eighth Ave., in 2014.
As large tech and media corporations continue to seek out office space in non-traditional locations, Midtown Manhattan landlords struggling to fill office space may want to give some thought to moving away from the traditional glass and steel when they do their next renovation.
Ely Razin is CEO of CrediFi, a big data platform serving the commercial real estate finance market. He can be reached at ceo@credifi.com.
