The fact that the term “tech startup” is familiar to virtually anyone who lives above ground demonstrates that this type of company has been around for a bit — in fact, the tech bubble appears to be on the verge of deflating. Still, the tech industry is one of the fastest growing business sectors in the country, and many of the once scrappy startups that started on a shoestring a few years ago are now mature and established — some are even among the elite list of companies we call unicorns.
This development is showing up in the city’s office real estate landscape as well. Until recently, the tech industry’s demand for space was concentrated in the Flatiron District, part of the area known as Silicon Alley in Manhattan. This area provides young companies with an ecosystem that supports entrepreneurship and brings them together with venture capitalists and potential partners.
The district’s older, smaller buildings are ideal for small organizations that are just getting started. Subsequently, shared office space options such as coworking spaces, PivotDesk host companies and virtual office providers have cropped up all across the neighborhood. Spaces as small as 1,500 square feet have been in high demand there, as they possess the light-filled, open, loft-like feel that many entrepreneurs prefer. Another reason for the area’s popularity is that as companies build their unique culture, the vibe of the workplace is critical. The Flatiron District surrounds startups with firms they do business with and also attracts investors. Some venture capital businesses in the area include Union Square Ventures, First Round Capital and IA Ventures.
Movement out of the Flatiron District
In the last year, however, we’ve seen an increase in interest from the tech sector in PivotDesk’s Midtown properties, signifying a shift in tech company’s desires. What’s behind this change? The short answer is growth. Many tech companies have matured to the point where it makes sense to relocate, and that’s reflected in the number of firms that are looking for shared office space, or are looking to share space as host companies, in Midtown. There are several reasons why this neighborhood is appealing to growing tech companies at this stage of development.
The first reason has to do with the customers the firms are targeting. These more mature tech companies are reaching larger, more established customers, and a Midtown location is more suitable for serving and meeting with a clientele of that nature.
Additionally, as these companies grow, their employee roster becomes more diverse. In a company’s early days, there are often just a few employees — often younger, and they tend to choose to live near Silicon Alley and embrace the startup vibe. Larger companies naturally include employees from a wider cross section, and often employ people from throughout the tri-state area. A Midtown location is just more accessible to more people.
Another factor is the size of properties available in the Flatiron District vs. Midtown. Flatiron’s inventory is mostly older Class-B and Class-C buildings with more character, but less floor space. Growing companies need access to more expansive floor plans and find that there are more properties like that to choose from in Midtown. When you’re a scrappy 10 person team, a rickety service elevator can be endearing, but when you’ve grown to 70 and need a professional space to scale your business, the less desirable aspects of lower quality offices (like shoddy elevators) lose their charm.
Office sharing in the Midtown area provides a way for tech companies to make their transition from Silicon Alley to uptown seamless. More established Midtown businesses are stepping up and becoming PivotDesk hosts to welcome these growing tech companies. We’ve seen an increase of 50% this year in the number of shared office listings in Midtown. That’s a huge uptick in supply in a short timeframe. Our data says it all — PivotDesk hosts are currently sharing 60% more space in Midtown than in Flatiron.
So, is the end of Silicon Alley?
Madison Square Park lovers rest easy — we don’t see this trend as trouble for the Flatiron District. On the contrary, it continues to attract innovators and entrepreneurs. What seems to be happening is that their older cousins are moving out to make room. And we’re happy that the practice of office sharing makes this more feasible and efficient.
The modern workplace is changing fast...
Are you keeping up?