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<\/p>\nCompared to tech giants\u2019 voracious office appetite in New York City, artificial intelligence companies have been flying under the radar. But that\u2019s starting to change.<\/p>\n
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\n AI firms are increasingly snapping up space in turnkey Class-A-minus and B-plus space in Midtown South.\n <\/p>\n
Leasing from AI-focused companies has increased\u00a0in Manhattan over the past few years. Those firms are now responsible for occupying swaths of space in Midtown South<\/a> \u2014 and are poised to grow even further as investors pour more dollars into the sector.<\/p>\n \u201cYou’re seeing a very strong demand come out of the West Coast companies, Stanford and Silicon Valley-based companies,\u201d Newmark<\/a> President of Leasing for North America Liz Hart<\/a> said. \u201cThat’s showing a reinforcement of the importance of the New York-based tech ecosystem to the national and international stage.\u201d<\/p>\n The biggest tech tenants in the market aren\u2019t the companies driving the bulk of leasing activity,\u00a0Savills<\/a>\u00a0Director of Research for New York and Tri-State\u00a0Matt Schreck\u00a0said.<\/p>\n \u201c[There\u2019s] definitely more activity, especially among the smaller to midsize, more growth-stage companies,\u201d he\u00a0said. \u201cThat’s the intel that I’ve gotten from our brokers here, and also what we’ve seen bear out in the data.\u201d<\/p>\n Through the first nine months of this year, companies that have AI as a core component of their businesses leased\u00a0486K SF of office space in Manhattan, Savills found.<\/p>\n That is more\u00a0than the 414K SF of leases\u00a0in the entirety\u00a0of 2024, and it is\u00a0almost double the 265K SF that AI companies signed for in 2023.\u00a0<\/p>\n While AI and tech firms were\u00a0a drop in the bucket in Manhattan’s\u00a031M SF of office leasing activity during the first three quarters, Schreck said, the Big Tech\u00a0firms \u2014 which are investing heavily in AI \u2014 have become noticeable drivers of demand for office space.<\/p>\n Amazon has signed deals for\u00a0more than 1M SF<\/a> in Manhattan offices over the past couple of years as it seeks to bring\u00a0all of its employees back to\u00a0the office five days per week<\/a>.<\/p>\n Last month, San-Francisco-based Salesforce signed one of the biggest deals of the quarter\u00a0when it expanded by 71K SF<\/a> at its namesake tower at 3 Bryant Park \u2014 even as it predicted that AI adoption would reduce its headcount.<\/p>\n There has also been demand from AI titans including OpenAI, which signed for 90K SF<\/a> at Kusher Cos.\u2019 Puck Building last fall, and cloud-native analytics platform Sigma Computing, which took 64K SF<\/a> at SL Green\u2019s One Madison Ave. this summer.<\/p>\n Less obvious are the smaller AI tenants, which are actively seeking roughly 480K SF of additional space in NYC, according to Savills. That means the AI leasing<\/a> boom will likely continue, Schreck said.<\/p>\n \n 3 Bryant Park, where Salesforce expanded by 71K SF last month.\n <\/p>\n Full service real estate advisory and investment firm Okada & Co. has seen a boost from those smaller companies. The firm negotiated with AI companies over 15 spaces this summer, and Okada\u2019s brokers eventually signed 10 deals at around 5K SF or less \u2014 nine of which were in their own buildings, said the firm\u2019s CEO and founder,\u00a0Christopher Okada<\/a>.<\/p>\n \u201cIt’s a wonderful addition to our leasing business,\u201d he said.<\/p>\n Even though AI companies often sign for shorter-than-normal lease periods \u2014 often\u00a0two to three years, with options to leave within 24 months \u2014 most also have clauses to facilitate expansion included in their leases, Okada said.<\/p>\n They are also taking less space, but Okada said he expects the number of AI companies looking for offices\u00a0to grow as investor dollars pour into the sector.<\/p>\n Corporate investment in U.S. AI companies hit a record $252.3B last year,\u00a0according to data<\/a>\u00a0from\u00a0the Stanford University Human-Centered Artificial Intelligence Institute. The seven biggest tech companies in the U.S. accounted for 36% of the S&P 500’s market value at the start of this quarter,\u00a0Reuters reported<\/a>.<\/p>\n The smaller firms that make up the bulk of AI leasing in Manhattan are well-capitalized, Okada said, meaning the companies he has signed have enough cash to pass due diligence sniff tests from office owners before landlords sign over space.<\/p>\n \u201cA lot of these groups are flush with capital,\u201d Okada said. \u201cThese AI companies had raised tremendous amounts of money over the last 12 and 24 months.\u201d<\/p>\n After being a missing tenant group during the pandemic and the period shortly after, tech companies including AI-focused firms are increasingly becoming a core component of the NYC office market, Hart said.<\/p>\n Newmark is tracking 50 tech tenants shopping for space, she said. Of those, very few are looking to shrink: 41% of those companies are expanding their office, while 48% are looking to stay roughly the same size.\u00a0<\/p>\n<\/p>\n