Google paying US$2.1b for Manhattan office building; a boost to New York real estate

New York

GOOGLE on Tuesday announced it would spend US$2.1 billion to buy a sprawling Manhattan office building on the Hudson River waterfront, paying one of the largest purchase prices in recent years for an office building in the United States and providing a jolt of optimism to a New York City real estate industry lashed by the pandemic and the shift to remote work.

The transaction comes during a precarious period for the city's office market, the largest in the country, as the swift embrace of hybrid work and the shedding of office space have presented the most serious threat to the industry in decades.

While Manhattan has a glut of office space available for lease, setting record highs during the pandemic, the four firms that make up so-called Big Tech - Amazon, Apple, Google and Facebook - have staked a bullish position on the future of New York.

The companies have rapidly grown their operations and workforce, one of the few bright spots for New York, which has been hit harder by the pandemic's economic toll than any other major American city.

Google was already leasing but not yet occupying the 1.3 million-square-foot property, known as St John's Terminal, a former freight terminal that is being renovated and expanded near the Holland Tunnel. The company has 12,000 corporate employees in New York City - its largest satellite office outside its California headquarters - and said on Tuesday that it planned to hire 2,000 more workers in the city in the coming years.

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"New York's energy, creativity and world-class talent are what keep us rooted here and why we're deepening our commitment with plans to purchase St John's Terminal," said Ruth Porat, the chief financial officer at Google and its parent company, Alphabet. "We look forward to continuing to grow along with this remarkable, diverse city." Collectively, the four tech giants employ more than 20,000 people in their Manhattan offices. But their workers are unlikely to work five days a week in the office again anytime soon. Many tech companies have said they will allow employees to work remotely in a hybrid arrangement even after the pandemic ends. Google recently postponed its return-to-office plans to early 2022 because of the highly contagious Delta variant.

The speed with which the economy recovers in New York City, especially Manhattan, could hinge on its swath of office buildings, which before the pandemic, attracted one million workers every day whose spending on everything from morning coffee to business lunches to after-work Broadway shows supported thousands of businesses. The absence of those workers during the pandemic has led many stores and restaurants to close in Manhattan.

Companies have embraced remote work during the pandemic in ways they never had before, deciding that employees could continue to work away from the office for some or all of the week after the pandemic eventually ends and even hiring new employees who plan to work remotely indefinitely.

As a result, large employers like Conde Nast and JPMorgan Chase have relinquished chunks of office space, contributing to nearly 19 per cent of Manhattan offices being available for rent, according to Newmark, a real estate services firm, nearly double the average rate over the last decade.

About 28 per cent of office workers in the New York City region, which includes parts of New Jersey, Connecticut and Pennsylvania, had returned to the office as of last week, more than double the rate from a few months ago, according to Kastle Systems, a security company that tracks employee card swipes in office buildings. The nationwide average was 33.6 per cent, Kastle said.

Kate Lister, the president of Global Workplace Analytics, a consulting firm advising companies on their return-to-office policies, said that hybrid work would remain a permanent feature of work culture after the pandemic.

Office space is not going to disappear, but, she added: "The total space will come down." Still, elected officials in New York sought to cast Google's announcement as a sign of the city's rebound. "This announcement from Google is yet another proof point that New York's economy is recovering and rebuilding," Governor Kathy Hochul, a Democrat, said in a statement. "We are creating jobs, investing in emerging industries, lifting up New Yorkers, and together, we are writing our comeback story." Mayor Bill de Blasio called the deal "a historic investment in New York City".

When the building opens after construction is finished in mid-2023, Google will have more than 3.1 million sq ft of office space in New York, making it one of the largest leaseholders in the city.

The terminal building that will be home to Google's new office is in Hudson Square, a neighbourhood on the West Side of Manhattan that is sandwiched between Tribeca, Greenwich Village and SoHo. Many creative, media and tech companies have offices there, including website builder Squarespace and eyewear company Warby Parker. Disney has selected the neighbourhood as the new headquarters for its New York office.

In addition to its office district, the area has a growing residential population, after a rezoning in 2013 led to a boom in the development of new high-rise and condo buildings.

In recent years, Google's main rivals, notably Amazon and Facebook, have also invested heavily in New York City, turning a swath of the West Side, from Midtown to Lower Manhattan, into a thriving tech corridor. Facebook has acquired more than 2.2 million sq ft of office space in Manhattan, most of it signed just before or during the pandemic, and has 4,000 employees in the city. Amazon, whose corporate offices are largely clustered near its competitors on the West Side of Manhattan, bought the former Lord & Taylor building on Fifth Avenue for US$1.5 billion in March 2020.

And while the tech industry has been among the most amenable to remote work, the companies are still gobbling up real estate, a potential sign of their hiring pace and of a reimagining of office space.

Tom Wright, president of the Regional Plan Association, a research and advocacy group, said that even though tech employees may come into the office only a few times a week, they may want more space between desks or bigger conference rooms. In particular, he said, offices need to figure out how to accommodate hybrid meetings in which some participants are in person while others are videoconferencing from home.

"During the pandemic, people assumed an across-the-board reduction in activity and demand for office space when actually it's a much more complex equation," Mr Wright said.

The growing footprint of Google and other tech giants in New York reflects their increasing importance to the city's economy. Economists expect the tech sector to be a primary engine for job growth after the pandemic.

In the first eight months of the pandemic, there were more job openings in technology roles than in any other occupation in New York City, according to an analysis of job postings by the Center for an Urban Future, a nonprofit research group. During that period, demand for tech workers was more than double that for finance.

The tech sector has become New York City's most reliable source of new middle- and high-wage jobs, researchers said, with average wages in tech jobs 49 per cent higher than the average private-sector wage.

But the presence of tech giants in the city has also been a source of tension, most notably in 2019, when Amazon abandoned plans to build a corporate campus with 25,000 employees in Queens after facing opposition from progressive activists, elected officials and union leaders. They were angered chiefly by billions of dollars in government tax breaks and incentives offered to Amazon as a lure.

Less than a year later, Amazon signed a lease for office space in Midtown Manhattan near the Hudson Yards development, the start of a multi-year expansion in New York City.

Julie Samuels, the executive director of Tech:NYC, an advocacy group for the tech industry, said that despite the collapse of the Amazon deal in 2019, tech companies are still drawn to New York City because of its concentration of diverse tech talent. NYTIMES