The developer Edward Minskoff’s patience and perseverance at 51 Astor Place has paid off: the IBM Watson Group recently signed a 120,000-square-foot lease to become the anchor tenant at his 12-story trophy office tower at the crossroads of the East and West Village. The transaction brings 51 Astor Place to a 70-percent occupancy, with Mr. Minskoff’s assurances that pending deals will boost the rate to over 90 percent in the coming weeks. Although transaction details are not available, asking rents for the IBM Watson Group space start in the low $80s per square foot and rise to $90 per square foot during the lease term, according to the data firm CompStak.
IBM Watson Group’s deal is for 120,000 square feet. The business unit will relocate nearly 2000 workers to the 400,000-square-foot 51 Astor Place, whose entire third floor has already been secured by the online marketing firm 1stdibs in a deal that portended this one. IBM formed the Watson Group business unit to develop its “Jeopardy” computer program, which is an AI-powered computer system that is designed to answer questions and compete on ABC’s familiar television program. The group’s new office space will also feature incubator space, which should benefit from the nearby Cooper Union and NYU.
According to Forbes, the Watson Group chose 51 Astor Place and its Silicon Alley location because “IBM hopes to build momentum and show New York’s burgeoning techie scene that IBM can still be cool.” While that may be a challenge given the critiques that 51 Astor Place’s architecture has received in some circles, expect this deal to only strengthen Midtown South’s drawing power for high-end, high technology companies as the 2014 leasing environment continues to proceed. Indeed, new commercial construction in desirable submarkets should benefit from tech tenants that want both Class A amenities (51 Astor Place features a roof terrace, advanced building systems, and a 14-foot red Jeff Koons lobby sculpture called Red Rabbit) and the community of talent and demographics that those submarkets – like Silicon Alley – offer.
The tight market for that type of space, particularly in Silicon Alley, will only continue to fuel demand from tech firms. Indeed, according to JLL, the vacancy rate for Class A space in Midtown South dropped to 6.1 percent in the fourth quarter of 2013, down from 9.6 percent in the fourth quarter of 2012. (Current overall Manhattan office vacancy rates stand at 11.1 percent.) We expect those figures – at least for Silicon Alley – to continue to remain low through 2014, particularly given the lack of new Class A office space that is slated to come online over the next twelve months.