New York - Big shifts in the Big Apple
Our proprietary city ‘DNA’ analysis suggests New York City is a technology trailblazer, millennial magnet, cultural capital and coastal champion. Each of these DNA strands benefits the city’s commercial property market. As a technology trailblazer, New York City’s high-tech employment has consistently outpaced finance employment (Fig.1). Currently, high-tech employment in New York City exceeds 336,0001 while financial employment exceeds 595,0002. As a cultural champion, this city generates and fosters artistic experiences through its city-owned cultural institutions and unique entertainment attractions. An increasing number of technology opportunities, distinguished cultural experiences, and its connectivity have positioned New York City to be a millennial magnet.
It is imperative to understand the implications of New York City as a technology trailblazer and millennial magnet from a commercial property perspective. Identifying and tracking the subtle trends that lead to gentrification is integral in uncovering how real estate dynamics in a (sub) market will change.
After employing real-time New York City Open Source Data to complement traditional real estate data sources, we believe neighborhoods such as Midtown East, Astoria, and Jersey City will be millennial magnets and top performers in tomorrow’s world.
Lessons learned: Meatpacking mania
The Meatpacking District in Manhattan has undergone significant revitalization in recent years. This once dangerous neighborhood full of slaughterhouses, packing plants, homelessness and delinquency has seen an influx of rooftop bars/nightclubs, trendy hotels, fashion houses, museums/galleries, and world-renowned restaurants within the last decade. In recent years, the city transformed a once old rail system into The High Line, which is referred to as a ‘park in the sky’. There has been an increased desire for firms to secure a spot in this petite trendy market due to the District’s recent invasion of creatives & innovators, proximity to transit, and abundance of old and empty warehouses that could be redeveloped into creative, office, retail, and living spaces. As such, office rents in this submarket surpassed the New York City market average in 2012 (Fig.5). Tech companies like Google and Samsung have secured space in to this neighborhood and have led innovation in the area ever since.
One mile north of the Meatpacking District, another major submarket revitalization is taking place at Hudson Yards. Constructed on top of a rail yard, Hudson Yards is the largest private real estate development in American history. The newly constructed eastern portion of the development consists of almost 10 million sq ft of office and retail space spread across four office towers, one mixed-use building and a high-end shopping mall anchored by Neiman Marcus. The development also consists of a 285-unit condominium tower and the Bloomberg building, which contains a cultural venue named ‘The Shed.’ Many large orporations have moved their headquarters to the office buildings at Hudson Yards, including Blackrock (50 Hudson Yards), Coach (10 Hudson Yards), and Warner Media (30 Hudson Yards), while others have plans to do so in the near future, such as KKR (30 Hudson Yards) and Cooley LLP (55 Hudson Yards). Hudson Yards, when fully developed, could turn Midtown-West into New York’s premier hub for media, retail, and financial services.
Lessons learned: Bustling Brooklyn
Across the East River from Manhattan, a major transformation occurred in a once crime-infested borough. Brooklyn has experienced a significant demographic shift in recent years—specifically in Williamsburg. Millennials were originally drawn to this residential neighborhood because it was a cheaper alternative to Manhattan and offered accessible transportation options.
As evidenced by its numerous art galleries, vegan restaurants, yoga studios, and organized techevents, this neighborhood has been a safe haven for millennials. The energy found in Williamsburg has spilled over into other areas of the borough. The collaboration of techies, creatives, and entrepreneurs has produced numerous start-up companies across Brooklyn.
With support from local government, a strategic plan for a ‘Brooklyn Tech Triangle’ was formed in Spring 2013 in order to nurture the economic growth of the area. The trio comprised of DUMBO (which stands for ‘Down Under the Manhattan Bridge Overpass’), Downtown Brooklyn, and Navy Yards, has become home to over 1,350 innovative companies. According to Bureau of Labor Statistics, cumulative job growth in Brooklyn has consistently outpaced Manhattan since 2001 (Fig.7). Brooklyn office rents remain 32% below New York City market rents, but cumulative office rent growth in Brooklyn has outpaced that of the New York City market since 2000 (Fig.8).
New York University plans to invest 500 million dollars during the next decade in their Downtown Brooklyn Campus in an effort to create an ‘innovation hub for engineering, applied science, urban science, digital technology, and digital media arts’. Collaboration of tech professionals and motivated students will remain robust in years to come as a result of these efforts from New York University. The combination of millennial techies, artists, creatives, and strongminded students in this particular area creates a large network for individuals to join forces and alter the way we live in tomorrow’s world.
Bringing life to Manhattan
The life sciences sector has seen major growth across the country over the last decade, and New York City has recently emerged as a major player, with Manhattan at the forefront.
Growth in the life sciences industry has been driven primarily by a growing and aging U.S. population, greater digital technological health care capabilities and industry pressure to lower health care costs.
National life sciences employment has grown from 1.5 million in 2009 to more than 1.7 million today and was growing at a rate of 3.2% YoY as of Q418. In New York, life sciences employment grew at a rate of 3.6% YoY from 2010 to 2016, and the current workforce is uniquely well-balanced between R&D, Manufacturers, Medical, Diagnostic and Testing Labs. Life sciences tenants occupied 1.53 million sq ft of space in Manhattan in 2018, a growth from approximately 1.05 million sq ft of occupied space in 2010.
New York’s life sciences growth has been driven primarily by its access to a large talent pool, stemming from its high concentration of academic and research institutions, and growth in funding for health tech and biotech. Industry funding is largely comprised of National Institutes of Health (‘NIH’) research funding, venture capital, and subsidies from both the city and state. NIH funding has grown steadily over the past five years and stood at $1.8 billion in 2018 – the second-highest level received by any city in the U.S. VC funding has also increased dramatically, growing from $100 million in 2017 to over $600 million in 2018. Additionally, both the City of New York and New York State have committed $500 million and $620 million, respectively, to promote growth in the life sciences industry through various initiatives. Over $950 million of NIH funding has gone to three institutions – Columbia School of Health Services, the Icahn School of Medicine at Mount Sinai and NYU School of Medicine, while health technology companies, such as Oscar, and biotech companies, such as Kallyope and Prevail Therapeutics, have largely benefited from VC funding.
Eight buildings currently lease space to life sciences tenants in Manhattan, but the borough’s inventory is growing rapidly to support increasing demand. Two buildings, 619 West 54th Street and 461 West 126th Street, were delivered in 2019, and there are eight additional life sciences-focused buildings scheduled to be delivered between 2020 and 2025. Seven of the eight buildings scheduled to be delivered will be located in Midtown and Midtown South, areas that are well suited for flex office space. Though life sciences consists of many high-beta sectors, such as biotech, we expect life sciences to become a low-beta sector as consumers begin to rely on it for basic health services. Given that life sciences employment grew through the last crisis, we expect that enduring life sciences employment growth will continue to generate office demand through the current cycle.
Looking forward in aspirant Astoria
We expect Astoria, Queens to have continued millennial attraction in the years to come. Using a combination of both real-time open source data and traditional real estate data, one can determine that this particular area is an attractive neighborhood for the youthful population. In order to identify where millennials are going after their nights out in Manhattan, we examined New York City Taxi Data.
Specifically, we granulized our analysis to filter on:
- What: Taxi drop-off locations from trips originating in Manhattan
- Where: Outside Manhattan
- When: Weekends, between 10 p.m. - 4 a.m., sampled from June 1, 2016 to July 1, 2017
- Why: This is the most likely time millennials will be traveling home after their nights out in Manhattan
Our analysis indicates that Astoria, Queens has the highest number of taxi drop offs from Manhattan in this time period (Fig.10). From these results, we can infer this particular neighborhood is a residential magnet for New York City citizens that enjoy the Manhattan night life. Williamsburg, previously mentioned as a residential hub for millennials, had the second highest number of taxi drop-offs in this same
time period. Greenpoint, situated between Astoria and Williamsburg, also had a significant number of taxi drop-offs. Given its close proximity, this particular area has opportunity to capture millennial residential spillover from Williamsburg.
To strengthen this study of taxi drop-offs, we also investigated multifamily construction data across New York City. We recognized several overlapping locations between the two data sets. In fact, each area identified as a top taxi drop-off location in 2016 and 2017 was identified as a top construction area for 2018 (Fig.11). Long Island City (which includes Astoria in the source’s boundary definitions), is forecasted to have the most net completions in 2018. Furthermore, Astoria is located across the East River from Cornell Tech and also has significant amount of Link NYC locations pending activation.
Given Astoria’s close proximity and ease of travel to Midtown Manhattan, this neighborhood is an attractive alternative for those that commute into Manhattan. As such, we believe that there will be investment opportunities for apartment and retail in this particular neighborhood.
Almost there: Jubilance in Jersey
Currently, there is a clustering of an active, youthful population occurring within Jersey City. Specifically, our analysis indicates a cluster of millennials and Generation Z living and working near the Grove Street PATH.
The ease of travel to and from Jersey City, via PATH (Port Authority Trans-Hudson), ferry, and bus services has created an incredible amount of synergy, specifically with nearby Lower Manhattan. To identify where millennial and Generation Z cohorts are congregating within Jersey City, we examined CitiBike Data. Our analysis indicates that in Jersey City, millennial and Generation Z bike ridership to and from the Grove Street PATH station is exponentially higher than any other station (Fig.12).
These results offer various implications:
- Active, younger generations are living in Manhattan and commuting to an office in Jersey City near Grove Street PATH
- Active, younger generations are living in Jersey City, near Grove Street PATH, and are commuting into Manhattan
From Grove Street PATH station, riders can be at the World Trade Center Hub in 10 minutes or 14th street in Manhattan in 14 minutes (which is walking distance to Meatpacking District). Jersey City has one of the
largest concentrations of tech professionals in the New York City area. As such, there has been an influx of large tenants including UBS, Bank of America, JP Morgan, and New York Life that have expanded outside
Manhattan and into space along the Hudson River Waterfront for their tech-related teams to station. CBRE-EA projects that office rent growth in Jersey City will be stronger than other major office markets in
New York City through 2026 (Fig.13).
Axiometrics projects effective rental rates for apartments in Jersey City to exceed those in traditional NYC neighborhoods like Upper East Side, Upper West Side, and Downtown Manhattan by 2022. Stevens Institute of Technology, just one town north in Hoboken, is home to over 6,500 students eagerly seeking full-time positions in technology-related fields. Identified by College Board as a ‘very selective’ school with a 44% (College Board) acceptance rate, it is clear that fresh tech talent is rampant in this particular area. Similar to Brooklyn, tech-related networking events are starting to become a norm in Jersey City, allowing for collaboration amongst professionals.
Jersey City has adapted the arts in recent years. There has been a noticeable restoration from graffiti to street art across the area, which has been led by the Jersey City Mural Arts Program. Established in 2013, this program seeks to engage local artists to create an ‘outdoor art gallery’ through street art, as opposed to vandalism and graffiti. Interestingly, the largest cluster of murals and street art in Jersey City overlaps with the largest cluster of millennial and Generation Z Citi Bike ridership previously mentioned (Fig.14). On the new luxury Cast Iron Lofts Apartments, a massive mural of David Bowie greets visitors and draws attention to the amenity-filled residential development occurring in the newly dubbed ‘SoHo West’ (South of Hoboken, West of New York) (Fig.15).
These trends present several investment opportunities within apartment, office, retail, and industrial sectors. As the Hudson Waterfront in New Jersey (Weehawken, Hoboken, and Jersey City) continues to densify with youthful families, there will be significant residential and retail opportunities. If clustering of talented millennials continues in the area, there will be opportunities in the office sector to capture from continued tenant movements. From an industrial perspective, we believe that between the growing population, sizeable industrial stock and land available in New Jersey, this will be a last-mile distribution market.
Undoubtedly, New York City is experiencing an influx of technology-focused talent. While New York City will remain the financial capital of the world in the near future, it is imperative for investors to recognize
and adapt to the changes that are occurring in this market as it shifts away from being predominantly finance-driven. By utilizing real-time New York City Open Source Data to complement traditional real
estate data sources, investors can create holistic viewpoints and educated predictions of where millennials and young talent is clustering in New York City.
Our ‘DNA’ analysis concludes that New York City will be a technology trailblazer and magnet for millennials to congregate in the years to come. We believe that the movement and clustering of talented millennials into new and upcoming areas of this strong and resilient market will provide significant opportunities for investors in tomorrow’s world.