Has the Market Found a New Level?

VIEWPOINT MANHATTAN OFFICE NYC tech talent soaring amid flurry of marquee tech office leases

The New York City metro area1 remains one of the most dominant tech markets in the country, according to CBRE’s recently released 2019 Scoring Tech Talent report. The report highlights the current depth of the NYC metro tech talent2 pool across all industries—from finance and insurance to health care, media and consumer products—that portends continued growth. NYC metro tech talent employment totaled 264,000 jobs last year, second only to the San Francisco Bay Area. This level represents an impressive 44% jump, or the addition of 80,600 new jobs, since 2011. Furthermore, 2018 was the second consecutive year in which NYC’s total tech talent growth accelerated, rising 4.0% after growing by 3.3% in 2017 and 2.2% in 2016.

Tech Talent in NYC Metro Continues Climb Occupational Level Tech Employment (Thousands) 264.4 254.3 246.2 17.0 250 240.8 12.2 227.2 11.9 39% 219.5 12.6 24.3 24.7 215.5 24.1 11.6 23.7 11.4 11.3 2% 200 23.2 183.7 24.2 22.8 11.5 23.0 123.3 109.9 120.3 150 107.8 3% 100.9 100.0 101.1 77.8 100

50 96.8 100.3 97.4 99.4 84.2 91.5 71.4 80.0 2%

0 2011 2012 2013 2014 2015 2016 2017 2018

Software Developers & Programmers Computer Support, Database & Systems Computer & Information Systems Managers Technology Engineering-Related Source: CBRE Research, BLS (Metro Area), OES Survey. Data as of January 1, 2019.

Nearly half of the growth in 2018 was in technology engineering-related occupations, which grew by a substantial 39% or approximately 4,800 jobs. Meanwhile, the NYC metro region saw modest but steady increases across other tech occupations, including software developers and programmers, which grew by 2,000 jobs. These highly skilled, highly paid workers are also the most in demand among tech talent occupations. With 99,400 working in software-related jobs, the NYC metro area has the country’s second- largest pool of these sought-after workers, demonstrating the depth and quality of the local tech labor force. NYC Metro Is Rich in Highest-Skilled Tech Talent Software Developers & Programmers Employment

Market Total Jobs % of Tech Talent SF Bay Area, CA 156,670 44.3% New York, NY 99,384 37.6% Seattle, WA 79,780 50.9% Washington, D.C 75,850 29.9% Toronto, ON 67,000 29.3% Boston, MA 61,670 38.5% Dallas/Ft. Worth, TX 58,340 34.5% Chicago, IL 55,430 33.3% Los Angeles, CA 45,293 32.4% Atlanta, GA 44,720 31.6% Source: CBRE Research, BLS (Metro Area), OES Survey. Data as of January 1, 2019.

Looking ahead, the NYC metro area’s deep pipeline of both potential tech labor force entrants and start- ups provides the fuel for further tech talent growth. Per the report, 13,000 tech degrees were conferred in the NYC metro area in 2017, the most recent data available, ranking the NYC metro first in total tech degree completions. Moreover, the start-up pipeline among top regional universities remains strong, with approximately 1,000 companies formed and $17 billion in capital raised among Columbia University, New York University and the State University of New York.

The demand for tech talent comes from leading companies in virtually all industries that are accelerating their tech-driven corporate strategies to stay ahead of the pack. Publicis Groupe, the advertising and media giant who in June completed Manhattan’s largest office deal of H1 2019,3 offers a glimpse into the urgency with which companies are initiating these digital strategies. Publicis recently acquired Epsilon, a leading data-driven marketing company, to rapidly expand its personalized marketing offerings by leveraging technology and data. According to Publicis Groupe’s CEO, the acquisition was intended to bring “the necessary technology, expertise and the talent to complement our offer in creativity, media and business transformation” and will help the company go “further, faster and deeper in our own transformation, becoming a leader in this data-led, digital-first world.”4

Another reason for the strong growth of the local tech talent labor market is the robust expansion of high- tech companies in recent years. The high-tech sector, which spans software/hardware design

JULY 2019 CBRE Research © 2019 CBRE, Inc | 2 VIEWPOINT MANHATTAN OFFICE to technical consulting services, has seen a surge in employment in NYC5 during this cycle, adding more than 50,000 jobs and growing by 66%—the strongest rate of employment growth of any industry in the city.

NYC High-Tech Job Growth Has Led All Other Major Sectors During This Cycle Industry Level Employment Growth (%): Trough - Present

70% 66%

60% 48% 50%

40%

30%

20% 15% 12% 10% 7%

0% Legal Services FIRE Advertising, Media, & Business & Prof. Services High-Tech (Trough: 2010) (Trough: 2009) Telecom (Trough: 2009) (Trough: 2009) (Trough: 2009) Source: CBRE Research, BLS, FRED. Data as of June 1, 2019.

The size and scale of the tech talent pool in the NYC metro area creates momentum that is helping fuel additional job growth. As tech companies expand and hire more tech workers, and as local universities churn out more graduates with tech degrees, the overall tech and innovation ecosystem within the regional economy becomes broader. Tech companies intersect with the NYC metro’s other signature industries— finance, media, business and professional services—fueling a tech-driven expansion across a wide array of industry sectors. This, in turn, attracts more tech companies and promotes further growth within companies that employ tech-enabled strategies to drive their businesses forward.

Over the past year alone, several tech-centric firms have signed notable leases in Manhattan, often citing the breadth of the local tech labor market. Peloton Interactive LLC signed a 312,000-sq.-ft. lease at the recently redeveloped 441 Ninth Avenue, with the CEO stating,6 “as our brand lives at the intersection of fitness, technology and media, this city is where the best talent can be found across all three of those industries.” Microsoft Corporation inked a new 63,000-sq.-ft. lease for all of the office space at the newly constructed 300 Lafayette Street, a deal that represented growth for the company. According to a Microsoft spokeswoman,7 the new office space will be used to “bring research, engineers and developers closer together in the Midtown South market.”

Other tech-centric companies have also completed high-profile office deals recently. NetFlix Inc. expanded by 67,000 sq. ft. at 888 Broadway, which will result in the media streaming company occupying nearly the entire 138,000-sq.-ft. redevelopment8. Yext Inc., an on-line brand management company, completed a 146,000-sq.-ft. full-building sublease at the new 61 Ninth Avenue for what will become its corporate headquarters.9 Additionally, health-care technology and services company Flatiron Health renewed and expanded at One SoHo Square (161 Avenue of the Americas and 233 Spring Street) for 251,000 sq. ft.10

Meanwhile, Google continues to grow its presence in NYC. In addition to purchasing 75 Ninth Avenue and 450 West 15th Street in Chelsea, Google expanded its leased space at nearby Pier 57, now committed to 434,000-sq.-ft. at the building.11 Google also recently finalized a mammoth 1.3 million-sq.-ft. lease for the entire building set to be redeveloped at 550 Washington Street, another component of its new Hudson Square campus after having already leased more than 500,000 sq. ft. at 315 and 345 Hudson Street.12

Other tech titans with a NYC presence have grown considerably this cycle as well. IBM selected 51 Astor Place as the global headquarters of its IBM Watson division in 2015. Moreover, after having a minuscule presence just a decade ago, both Facebook and Amazon each have made significant commitments in NYC, with Amazon inking a 365,000 sq. ft. lease at 5 Manhattan West in 201713 and Facebook expanding their presence at 770 Broadway by 319,000 sq. ft. last year14.

All these deals have all contributed to the robust tech leasing velocity seen in Manhattan over the past few years. Annual tech leasing velocity has surpassed just over 3 million sq. ft. in each of the past two years. 2019’s year-to-date total of roughly 3.3 million sq. ft. has already achieved the full-year totals witnessed in each of the prior two years. Just as impressive has been the spike in tech’s share of total leasing velocity, doubling from 9% for 2018 to 18% so far this year. Manhattan Tech Leasing Velocity Booming All Lease Types (Millions) 4.5 20% 4.0 18% 4.0 18%

3.5 3.3 3.3 16% 3.1 14% 3.0 2.8 2.4 2.4 12% 2.5 2.2 11% 10% 2.0 1.7 10% 10% 9% 9% 8% 1.5 8% 6% 1.0 7% 1.0 0.8 0.7 5% 4% 3% 3% 0.5 3% 2% 0.0 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD 2019* Midtown Midtown South Downtown % of Total Leasing Velocity *As of July 24, 2019. Source: CBRE Research.

In addition to recent leases, there is considerable additional space demand by tech companies. Currently there is 3.9 million sq. ft. of demand from tech companies, representing about 23% of the market’s 17 million sq. ft. of active requirements larger than 50,000 sq. ft. Much of this space is to satisfy ambitions for additional headcount growth, signaling the ongoing expansion of the tech talent pool and further enrichment of the NYC metro tech ecosystem.

END NOTES 1. New York-Newark-Jersey City, NY-NJ-PA MSA (Excluding Newark, NJ and Long Island, NY). 2. Tech talent includes the following occupation categories: software developers and programmers; computer support, database and systems; technology and engineering related; and computer and information system managers. The analysis looks at employment totals among 20 tech occupations not only in tech companies, but across all industries from finance and insurance to health care, media and consumer products. 3. https://commercialobserver.com/2019/07/publicis-inks-1m-sf-on-hudson-street/ 4. https://www.publicisgroupe.com/en/news/press-releases/publicis-groupe-to-acquire-epsilon MIDTOWN 5. New York (242.99City only. MSF) 6. https://www.prnewswire.com/news-releases/peloton-to-expand-nyc-footprint-with-new-corporate-headquarters-at-hudson-commons-in-2020- 300752307.html 7. https://www.crainsnewyork.com/real-estate/microsoft-inks-deals-soho-office-space-reports-say 8. https://www.crainsnewyork.com/real-estate/netflix-plans-100-million-expansion-manhattan-brooklyn 9. https://www.bisnow.com/new-york/news/office/tech-company-to-fill-vornados-chelsea-project-after-aetna-backed-out-98707 10. https://rew-online.com/2019/06/healthcare-giant-doubles-footprint-at-one-soho/ 11. https://www.crainsnewyork.com/who-owns-block/google-turns-chelsea-market-area-tech-hub 12. https://newyorkyimby.com/2019/07/google-finalizes-hudson-square-campus-lease-at-550-washington-street.html

13. https://therealdeal.com/2017/09/21/itsMIDTOWN SOUTH -official-amazon-is-coming-to-5-manhattan-west/ 14. https://therealdeal.com/2018/05/16/facebook(75.84 MSF) -expands-and-j-crew-relocates-in-complex-space-swap/

SOURCES CBRE National and NYC Research, BLS, OES Survey, National Center for Education Statistics (Region), Pitchbook, FRED.

For more information on this ViewPoint, please contact:

TRI-STATE RESEARCH

Nicole LaRusso Michael Slattery Director, Research & Analysis Manager, Research +1 212 984 7188 +1 212 656 0583 [email protected] [email protected]

Philip Stern Senior Research Analyst +1 212 656 0516 [email protected]

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