Manhattan tech/media companies grow up and out

By Staff Reporter

Apr 20, 2012 11:30 PM EDT

Less than four months after new technology company SocialFlow Inc moved from the fashionable digs it shared with six other firms in Manhattan's chic Meatpacking District, it is again looking for more office space.

"We're no longer a scrappy start-up," Frank Speiser, SocialFlow chief executive and co-founder, said from his new Midtown offices. "We're a start-up, but we have a lot of momentum."

The start-ups are growing up. They need more space, more privacy and offices located near their larger business partners. Maturity has sent many to Midtown, Manhattan's largest office market and home to the traditional office towers most people think of when they picture the New York borough.

These companies could provide support for rents that have taken a hit from a pullback by financial tenants and give new life to some aging buildings that banks wouldn't touch.

"This will help New York because it broadens the base of tenants that are living here," said Nick Farmakis, corporate managing director for tenant representative Studley. "Will it replace finance as the engine of Manhattan? Maybe one day, but it's far down the road if it happens."

SocialFlow is one of the hundreds of tech/media companies clamoring for space in Manhattan. Most have been new firms trying to attract creative and engineering talent with offices in funky buildings located in hip Midtown South neighborhoods such as the Meatpacking and Flatiron districts and Chelsea, home to Google Inc.

Their growth has created new demand for space, sending them uptown. Midtown buildings offer large floor sizes for such companies, which like to locate on one story. Many have found offices near Grand Central Station for the ease of many family-aged executives who commute from northern suburbs.

The move is also pushing tech and media companies into other unusual spaces. The former New York Times headquarters and the Empire State Building are among those being marketed to growing start-ups, firms that may give the buildings new leases on life.

MOVIN' ON UP

SocialFlow, whose technology enables companies to optimize their message on social networking sites such as Twitter and Facebook, in January moved into 10,000 square feet (930 square meters) of space at 140 East 45th Street, steps away from Grand Central.

The company needed to leave its Meatpacking District home when it became clear the staff of 31 could no longer fit into the 1,800 square feet it occupied there. SocialFlow was maturing and needed some private offices and other conventional amenities traditional buildings provide.

"We have two conference rooms that are basically operating all the time, an open floor, and then we have offices for some of the key executives so that we can actually discuss financing, HR issues," Speiser said.

SocialFlow can make do with its new offices for about the next 10 months, Speiser said. It plans to start looking for a larger Midtown space this month.

Nearby, Facebook leases 80,000 square feet near Grand Central and has the option to lease up to 150,000 square feet at 335 Madison Avenue, a building once known as Bank of America Plaza. When Facebook moved there, Twitter took Facebook's former location across the street.

Similarly, the online food-ordering site Seamless North America LLC, a Midtown tenant for years, moved in November to bigger digs nearly twice the size. It now leases 28,000 square feet at 1065 Avenue of the Americas at 42nd Street.

When they move to more-traditional office space, many of these companies take their decidedly noncorporate environment with them, such as ping-pong tables and family-sized kitchens. At its new location, Facebook peeled away part of the wall board to expose cinder blocks and there is literally writing on the wall.

The desire for unorthodox space -- and a lot of it -- has put a new focus on the old New York Times Building at 229 West 43rd Street in Times Square.

"As technology firms grow and want larger floor plates where they can put their entire firm on one floor, you're going to see more look in buildings like that," said Bill Peters, executive vice president at real estate services firm Jones Lang LaSalle, which is not representing the building's owner, Blackstone Group LP.

"I think that is a building that is ripe for that kind of firm," he said of the Gothic and French Renaissance-style building constructed in stages from 1912 through 1932.

The Empire State Building also has landed some tech and media tenants, with the most well-known being business social media firm Linked-in, which rents 32,000 square feet.

"Your showroom for a tech company is where you work," said Anthony Malkin, president of the Malkin Group that controls the Empire State Building, which is due to be part of an initial public offering involving 18 properties in total. "Who you will be showing it to is your workers."

The demand is not expected to slow anytime soon. Manhattan's ability to attract talent has made New York State the No. 2 recipient of technology venture capital funding, though California remains top by far. In the fourth quarter, VC funding in New York State rose to $434.4 million, up 30.6 percent from a year earlier, according to CB Insights, which tracks venture capital funding. The number of deals reached 60, up from 50 a year earlier.

With more funding come more start-ups, and their traditional Midtown South haunts are becoming increasingly scarce and more expensive.

In the first quarter, Midtown South's vacancy rate fell to 5.9 percent from 8 percent a year earlier, according to real estate services company Cushman & Wakefield. Asking rent rose 10.5 percent, the biggest jump in Manhattan.

Rent in the most desirable Midtown South buildings rose 33 percent from a year earlier and by $10.08 from the prior quarter to $67.52 per square foot. That is likely to continue making the traditionally pricier Midtown market more competitive.

"You've got a lot of tenants all chasing the same handful of buildings in Midtown South," Studley's Farmakis said. "There's not going to be enough space for them down there at the right price. These tenants will start to migrate to Midtown and the Downtown financial district, absolutely."

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