/// Bargain Seekers Broaden Manhattan’s Silicon Alley
NYTimes.com – A decade ago, in the dot-com boom, technology companies flocked to the neighborhoods along Broadway in Manhattan, with most ending up south of an unofficial cutoff of 23rd Street.
Today, though, that Rubicon is being regularly crossed by a new generation of digital businesses that seem willing to trade Lower Manhattan and its perceived hipness for the more button-down precincts of Midtown.
More than 100 Internet-based marketing firms, retailers and social networking companies are based in the area between the Flatiron Building and Central Park, out of about 1,400 similar businesses across the city, according to data compiled by NYC Digital, an initiative started last year by Mayor Michael R. Bloomberg to promote the city’s technology industry.
“The boundaries of Silicon Alley are definitely pressing outward,” said Jonathan Serko, a broker with Cushman and Wakefield who has worked to bring tech companies to Midtown. He added, “some of the companies are moving out of necessity.”
In pockets of downtown Manhattan, commercial rents have spiked in recent years as increasingly fashionable neighborhoods like Chelsea, Greenwich Village and the financial district have welcomed a surge of new businesses. Residential conversions have also gobbled up the types of industrial buildings that tech companies once favored.
At the same time, fledgling tech companies have become more cost-conscious than their predecessors, many of whom burned through their seed money in a short time, brokers say. Significant savings are possible in Midtown, where rents can be $40 a square foot compared with up to $70 a square foot in trendier areas, according to Cushman data.
GSI Commerce, which provides online services for retailers like Toys “R” Us, was subletting a 10,000-square-foot loft on Broadway in SoHo in 2011 when the company was acquired by eBay, prompting the need to expand.
“There are many spaces out there that are beautiful, don’t misunderstand me,” said Jan Dobris, a senior vice president of GSI Commerce. “They just weren’t good ways to expend dollars.”
The spaces that Ms. Dobris saw in SoHo, the financial district and Hudson Yards were around $60 a square foot, which was too pricey, she said. Eventually, she settled on 1350 Broadway, a prewar high-rise on West 36th Street.
In March, GSI leased the 25,000-square-foot third floor for about $45 a square foot, according to Malkin Holdings, the building’s landlord.
There are other perks about Midtown, like the proximity of Penn Station, Ms. Dobris said. Several of her company’s 100 employees travel frequently to GSI’s headquarters in King of Prussia, Pa., and she said they liked having trains close by.
Attracting digitally focused companies like GSI is a priority for Anthony Malkin, the president of Malkin Holdings, which has renovated most of its Manhattan portfolio to lure new kinds of tenants.
At 1350 Broadway, he refurbished the marble-walled lobby and elevator cabs, adding small monitors that display weather and news, and upgraded the building’s windows, lights and bathrooms. U Marketing, an ad agency with a big focus on digital platforms, moved to the eighth floor in 2009 and recently expanded into a next-door space.
Similarly, at the Empire State Building, which Mr. Malkin supervises, a continuing $550 million renovation has removed the walls on many floors to make offices more open.
The efforts may be paying off. This spring, LinkedIn, a social networking Web site, signed a lease for a 10,400-square-foot space on the 24th floor, Mr. Malkin said, to augment its 32,000-square-foot space on the 25th. Asking rents in the landmark 102-story skyscraper start at $50 a square foot, he added.
In opting for workplaces that are more conventional than the former warehouses where they began as start-ups, tech companies “are moving away from environments that are about creativity into those that are more ‘Let’s get to work,’ ” Mr. Malkin said.
Yet the look of those original industrial spaces, with open layouts, tall windows and high ceilings, can also be found in Midtown, like at 1385 Broadway, a 23-story building on West 38th Street in the garment district where many wedding dress manufacturers were once based.
This month, Ideeli, an online fashion retailer, will cut the ribbon there on a new full-floor 23,500-square-foot berth as it moves its production facilities from 148 Lafayette Street in SoHo. The new office has 12-foot ceilings and large copper windows.
A few stories up, ShoreTel, a communications company that counts Shake Shack among its clients, also recently signed a lease for a full-floor space. It will replace the company’s 15,000-square-foot office at 245 West 17th Street in Chelsea, a 12-story loft building that will be converted to apartments, said Heather Bennett, a ShoreTel vice president.
When completed in December, ShoreTel’s new home, where 100 employees will work, will feature an airy central space with desks, according to a rendering. It will have just a handful of traditional offices around the perimeter.
“We work in an open space today, and we want even more of that in our new office, because collaboration and learning are central to our projects,” Ms. Bennett said.
Bloomingdale Properties, the landlord at 1385 Broadway, has adopted a similar aesthetic for the building’s common spaces, courtesy of a three-year, $60 million renovation. By moving a newsstand, Bloomingdale was able to widen the lobby. It also added a ground-floor bicycle room.
Mindful that many dot-coms went belly up in the first go-round, landlords have become more rigorous in vetting potential tenants, said John Fletcher, a Bloomingdale vice president. Mr. Fletcher said he would not take a chance with a tenant unless it was established and could prove a steady revenue stream.
“We’re looking for companies that are mature, that aren’t just building the latest app,” Mr. Fletcher said.
Today’s tech companies aren’t true pioneers in Midtown. In the early 2000s, a handful of tech companies hung out shingles in the garment district. Other parts of Manhattan, and Brooklyn, have their own allure. A buildings at 75 Varick Street, a former printing plant, contains 38 tech companies, city data shows, although many are there because they lease small spaces through WeWork, a business center company that caters to start-ups.
But Midtown, especially along Broadway, is growing in popularity. There are seven companies at 1140 Broadway, according to NYC Digital, including Grab Networks, an ad agency, and another 13 companies at 1500 Broadway, in Times Square, including Dibsie, an apparel company.
Others turn up farther east; 13 tech companies, including Dolphin Micro, a Web site developer, have offices in 349 Fifth Avenue, at East 34th Street, which is owned by Zar Property NY. Higher-profile tenants in the area include Twitter, the microblogging service, which leases space at 340 Madison Avenue, at East 44th Street, alongside a law firm, a bank and a federal agency. Across the street is Facebook, which has three floors at 335 Madison Avenue, where it moved in 2010.
Critics say Midtown still has a way to go before it can offer the mix of stylish restaurants that proliferate downtown. That may explain why landlords in some submarkets are piling on so many extras, like six months of free rent, brokers say, especially in the less popular Grand Central area.
But it may only be a matter of time before services catch up.
“The area’s like a fine wine,” Mr. Serko said. “It just keeps on getting better.”