Blake Anderson found the perfect New York office for his artificial intelligence mobile app development company, 10x.
Airy SoHo loft features high ceilings and hardwood floors. It’s located in the heart of Manhattan’s startup district, not far from OpenAI’s outpost. Anderson pays $28,500 a month for the 3,000-square-foot space, which has 30 tables and a video game lounge area.
All that’s missing is staff.
The 25-year-old founder only owned one home when he signed a one-year lease in December. He remembers walking into the office and being surrounded by empty desks. “It was like: Man, have we swung too high?” Anderson said.
Cash-rich AI startups Promote a new round of prosperity Commercial real estate market in Manhattan. AI companies will sign more than 845,000 square feet of leases by 2025, according to real estate services firm JLL. This year, their leasing rates have nearly doubled, acquiring more than 414,000 square feet in the first quarter.
But on any given day, many offices have more vacant desks than employees. Benjamin Bass, vice chairman of JLL’s New York brokerage business, said he has recently started seeing AI companies leasing 60% more space than they currently need for the number of employees they need.
As AI companies see it, they will have ample time and opportunity to recruit employees. The more pressing issue is getting the coolest high-end office space in downtown Manhattan’s most coveted neighborhoods, from SoHo to the Flatiron District and NoMad.
Some companies say they want room for growth as they execute aggressive hiring plans. Others say office space in New York provides them with crucial credibility with clients, even if they currently only have a few local employees.
“One client actually asked us if we were personally involved in their due diligence process,” said Caitlin Leksana, CEO and co-founder of Fazeshift, a startup that provides AI agents for accounts receivable.
Yasmine Naini, director of investor relations and partnerships, is currently the only employee at an 11-desk coworking space on Park Avenue that the company pays $7,022.95 a month.
For some, it’s the atmosphere that matters more. Startup employees are spending more time than ever in the office for the following reasons The rise of “9-9-6” culture (working 9am to 9pm, six days a week) and wanted to work in a beautiful (if sparsely populated) space.
“If signing up for a larger workplace improves my ability to think clearly and the quality of my work experience by 20 percent, then it’s well worth it,” Anderson said.
Since locking in the lease, 10x’s New York staff has grown to four. That still leaves enough room to invite a handful of friends to use the SoHo office for free if they wish.
On a recent Monday, there were three 10x employees in the office, along with three friends and dozens of unused desks. But the extra space proved to be a blessing, Anderson said, because he found it calming. “Especially in a city like New York, it’s hard to find a quiet place,” he said.
With demand for properties in downtown Manhattan so high, landlords still have enough power to push for standard lease terms of seven to 10 years. Bass said AI startups have to make bets based on what they might need in a few years.
After using coworking desks and borrowing space in other startup offices, John Zhao was ready to commit to his own space. The founder and CEO of AI health startup Blossom is tired of moving around.
He signed a two-year lease on the 5,000-square-foot headquarters in Flatiron for about $17,000 a month. He has 12 employees covering about 40 desks, but he expects to expand into that area next year.
The space is littered with cardboard boxes and a tangle of computer cables. But it still comes with the essentials: a new ping pong table, a few industrial-sized boxes of Skinny Pop, and a well-stocked wine rack above the refrigerator.
During the dot-com bubble burst in the early 2000s, office landlords suffered when hundreds of startups folded and stopped paying rent.
JLL’s Bass said that hasn’t stopped many New York landlords from betting that these AI startups will grow in terms of headcount and revenue.
Even so, they often take a close look at balance sheets, financing, run rates, business plans and revenue projections before deciding whether to rent out a property — almost as if they were deciding whether to invest in a company, he said.
Some early industry players who were aggressive in leasing quickly outgrew their space, which helped solve the problem.
Artificial intelligence health startup Adonis leased a 25,000-square-foot office at 3 World Trade Center with just 25 employees. Today, the company has 85 employees, 50-60 of whom work in the office every day.
“We basically gave the company a size 12 shoe, and we were a size 4,” co-founder and CEO Akash Magoon said of the early decision. “We thought it would be an incentive.”
Write to Isabelle Busquet: isabelle.bousquette@wsj.com
