New York banks up sticks and follow technology money to Midtown South
A part of Manhattan dominated by technology companies - Google, Facebook, Twitter - is now drawing a more traditional New York industry: banking.
Office leasing by financial firms in Midtown South - the stretch between 30th and Canal streets with one of the lowest office vacancies in America - surged in the third quarter to 23.1pc of all deals, from 10.3pc in the previous three months, according to brokerage Cushman & Wakefield.
So far this year, banks and related firms have taken 255,000 sq ft (23,700 sq m) in the area, compared with 170,750 square feet in all of 2015.
Financial firms, including Silicon Valley Bank, are taking space because they want to be close to clients and business partners who already have offices in the area, home to such trendy neighbourhoods as Soho, Chelsea and the Flatiron and Meatpacking districts.
Between the skyscrapers of Midtown and lower Manhattan, the relatively low-rise neighbourhoods of Midtown South - with their pre-war lofts and former factories, warehouses and print shops - have been a magnet for tech and media companies.
"There are synergies, both from being near clients and it's a cool neighbourhood," said Jake Elghanayan, senior vice president of TF Cornerstone Inc., Silicon Valley Bank's new landlord. Silicon Valley Bank is planning to leave a glass tower on Fifth Avenue and move to 387 Park Avenue South, a more than 100-year-old building north of Madison Square Park, where it signed a lease for 20,000 square feet in July.
Before deciding to move to Midtown South, the Santa Clara, California-based bank, which specialises in serving technology companies, created a heat map showing where its New York clients' offices are.
"We're happy with our space in Midtown - it's on the corner of 42nd and Fifth, it overlooks the library and Bryant Park - but our location is not providing any particular advantages," said Melissa Stepanis, New York market manager for Silicon Valley Bank.
"We work with a vibrant group of entrepreneurs and investors in the technology space, and there's just an energy that these types of clients bring, and they're clustered in the Flatiron, Madison Square Park area."
Before the recent increase, financial industry leasing in Midtown South accounted for no more than 6.7pc of space taken in any quarter for more than two years. It rose as a portion partly because leasing by technology, advertising, media and information companies dropped slightly in the quarter, said Richard Persichetti, US Northeast research director for Cushman. Even with the leasing surge, financial firms represent just 18pc of the market, compared with tech and media's 43.5pc, he said.
Other financial companies that recently leased Midtown South space include London-based quantitative firm Winton Capital Management Ltd., which took 35,000sq ft at 315 Park Avenue South and is moving from the Seagram Building in Midtown's Plaza District, and Two Sigma Investments LP, which was already on Avenue of the Americas in Soho and is taking additional space in the area.
Even before the recent leasing surge, financial firms weren't strangers to Midtown South, said Kevin Draper, a historian and co-founder of New York Historical Tours. Credit Suisse Group AG has been in the Flatiron District's 11 Madison Ave., a 30-storey stone tower built in the 1930s, for 20 years, and the Swiss investment bank was once the dominant tenant at 315 Park Avenue South.
Large parts of the area, such as Chelsea, were industrial well into the latter half of the 20th century, with storage for cargo from ships that used nearby docks, and print shops that handled Wall Street's needs. That changed in the mid-1980s, when the advertising firm Saatchi & Saatchi moved into the Hudson Square neighbourhood.
The current tech invasion began in earnest with Google Inc.'s 2010 acquisition of 111 Eighth Avenue, a vast warehouse in West Chelsea. Tech firms were drawn to Midtown South as they like the buildings' open floors, the ability to lure and retain employees who live nearby, and the sense of community found at local bars and restaurants.
Rising demand has pushed Midtown South's vacancy rate down to 6.5pc, making it one of the tightest office markets in the US. Rents for Class B and C offices - those lacking the latest in finishes and luxury - were higher than Class A space in lower Manhattan. Midtown South landlords were seeking $67.90 a square foot for Class B space and $64.41 for Class C, while top-tier space downtown had an average asking rent of $62.44.
Class A space in Midtown South - there's only 18 million sq ft of it, out of a total market of 68 million sq ft, according to Cushman -was going for $85.06 a sq ft, compared with $84.92 in Midtown Manhattan to the north.