New York City has the most office space of any US city by far. With more than 451 million sq/ft of office inventory, New York City contains nearly 11% of the total office inventory in the US. NYC also has 122 million+ sq/ft more office space than any other US city (Washington, D.C. is in second place). That 122 million sq/ft is almost as much office space as there is in all of Philadelphia. Consider, too, that NYC fits all that office space into a tiny 300 mi2 area. Which means NYC is a hyperdense office market, with 1.5 million sq/ft of office space per square mile. NYC’s office growth is not slowing down. In fact, with 14.3 million sq/ft of office space under construction, New York City not only has the most total office inventory, but the most office inventory under construction too.
New York City contains nearly 11% of the total office inventory in the US
Beyond being the most dense office market in the US, New York City is also among the most expensive. NYC and SF often switch places at the top of office rental rates in the US. There’s so much price variation in each city’s neighborhoods, that, by different measures, either city could be the most expensive city for office space in the US. As it stands in JLL’s Q3 2017 Office Outlook, New York City has an average cost of $74.14 per sq/ft, compared to $74.22 sq/ft in San Francisco. Both are more than double the national average, of $33.11 sq/ft. While there’s a notable difference in the cost of flexible office versus core office, NYC commercial real estate is very expensive, no matter how you slice it. Factoring in 150 square feet of space per employee, the cost for a core space is about $11,121 per employee per year. to the average price per person for flexible office space is NYC is $287, adding up to $3,442 per year.
Even with the high cost of office space in New York City, there’s a fairly low vacancy rate, 10.2% in NYC, compared to national average of 15%. This makes NYC among the most fully occupied cities in the US, which is impressive considering the sheer amount of inventory in NYC. Of course, traditional measures of vacancy rate don’t tell the full story. Whenever a company leases space, there’s always unused or underused segments of that space. This is particularly true for long-term leases and large size spaces including entire wings, floors, or buildings.
Tech companies are beginning to understand this concept. And, they’re taking action to avoid the underutilization of space common in long-term, traditional leases.
New York startups raised $2.5 billion in Q2; $1.9 billion of that went to tech companies
New York startups raised $2.5 billion in Q2; $1.9 billion of that went to tech companies. At least 3 startups raised huge rounds of $150 million or more. This theme, of fewer giant companies controlling a large proportion of capital and employees is corroborated by a broader trend of the consolidation of capital and power. Bloomberg reports that there were 7,322 publicly traded US companies in 1996, but by 2015 that number halved; there were only 3,659 public companies in 2015.
NYC’s VC funding in Q2 2017 is the greatest example of this theme in recent memory. The average amount of funding per company is extraordinarily high, even for New York. The average funding round of approximately $15.8 million per transaction exceeds any other quarter since at least Q1 2014. In New York City, only two quarters since 2014 raised more total venture capital than Q2 2017. These were Q3 2015, and Q4 2016. The approximate average values per transaction for those quarters were $11.8 million and $13 million respectively.
With bigger funding rounds, involving more money and fewer companies, there will be a handful of big players making the most significant moves in NYC’s flexible commercial real estate market. We’ve already seen examples of the effects of these trends. For example, in April 2017, IBM signed a deal to rent every desk in WeWork’s University Place location in Manhattan. The deal involved 70k sq/ft of office space, presumably worth millions of dollars, although The Real Deal did not release official numbers. But, by most measures, it’s the most valuable coworking deal ever in New York City.