Google to buy Manhattan office building for $2.1bn

Big Tech staking bullish position on the future of New York

 

Google on Tuesday announced it would spend $2.1 billion (€1.8 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 US 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 it planned to hire 2,000 more workers in the city in the coming years.

“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.”

Hybrid working

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 any time 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 swathe of office buildings, which before the pandemic attracted a 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 such as Condé Nast and JP Morgan 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, Ms Lister added, “The total space will come down.”

Recovery

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 square feet 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.

– This article originally appeared inThe New York Times

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