AI leasing arrives one Flatiron floor at a time

Two artificial intelligence firms have each taken a full floor at 61 West 23rd Street, 8,367 square feet apiece and 16,734 square feet combined, in a seven-story Flatiron building between Fifth Avenue and Avenue of the Americas that the Zegna family owns with Taconic Partners. Cushman & Wakefield’s Connor Daugstrup and Taconic Development Advisors’ George Tsapelas represented the landlord on both leases.

Normal Computing, an AI hardware developer, is relocating and expanding its New York headquarters from 5,250 square feet three blocks south at 27 West 20th Street into one of those floors in November, a company spokesperson told Commercial Observer, with space sized to double a headcount that sits at roughly 30 employees. Savills’ Gabe Marans and Maxine Rosen negotiated for the tenant.

Inspiren, which sells an AI-powered platform to senior living communities, moved into its floor in early September; a company spokesperson described the space as the company’s first permanent New York City office after operations recorded at 19 Morris Avenue in the Brooklyn Navy Yard. Newmark’s Adam Spector and Ally Krieger represented Inspiren.

The ownership has been working this building for a decade. The Zegna family and Taconic bought 61 West 23rd for $65 million in 2016 and tapped Taconic to reposition it, restoring the historic façade and rebuilding the interiors around two new lobbies, modernized elevators and pre-built offices. Action Network, a sports betting media company, and the retailers Sisu Cosmetics and Empire State of Wine occupy other floors.

Pre-built offices of roughly 8,300 square feet suit a 30-person software company that cannot yet absorb a floorplate designed for a bank, and similar Midtown South buildings have spent this year competing for the city’s expanding pool of AI firms, Commercial Observer reports. In August, Colliers put the submarket at 47 percent of all Manhattan office demand.

The 47 percent demand share says nothing about how much of the submarket’s leasing comes from firms of Normal’s and Inspiren’s size. The two leases show the shape of AI occupancy at the small end, arriving floor by floor in buildings that have already been rebuilt. The underwriting behind it is a basis trade: Taconic’s return rests on a 2016 purchase price, a façade restoration and a set of pre-built floors that let a growth-stage company sign without a build-out negotiation, rather than on the rents a credit tenant would pay. Growth-stage tenancy carries growth-stage credit, and a landlord leasing a floor to a 30-person firm is underwriting a hiring plan as much as a rent roll.

Data center and power assets are now priced off the energization calendar, and non-data-center supply stays frozen behind that queue. AI demand is real on both sides of that line, but the office version behaves nothing like the digital-infrastructure version: it takes existing space in increments of this size, leasing statistics well before it moves rents. The next evidence will be whether a third AI tenant takes a comparable floor at 61 West 23rd after Normal moves in November, or whether Midtown South’s 47 percent continues to accrue to blocks these tenants do not take.