The damage continues to unfold from the September 11 terrorist attacks on New York City, including the loss of more than 132,000 jobs in 2001, the worst hit since the recession of 1991. But Wall Street jobs actually increased during 2001, and firms displaced or discouraged by the attacks are responding with real estate actions of their own.
The Manhattan vacancy rate did more than double during the year, to 11.2 percent in December, as the result of what Plymouth Partners President James Meiskin called "perfect storm" conditions that wiped out nine consecutive years of positive net absorption in the market. But contrary to supposition, the drop in sublease availability from 3.2 million sq. ft. (297,000 sq. m.) in December 2001 to 15 million sq. ft. (1.4 million sq. m.) happened by September 10. The attacks merely took things from bad to worse.
"New space can be leased at surprisingly affordable rents," says Meiskin. "Existing leases can be restructured to reflect the changed realities of the marketplace."
In New York City between January 2001 and January 2002, the available office space jumped from 3.9 percent to 8.3 percent, making the average asking price dip from $61.81 per square foot to $58.90 per square foot. Total office space available has more than doubled, from 7.16 million sq. ft. (665,000 sq. m.) to 15.34 million sq. ft. (1.42 million sq. m.) Since the attacks, midtown Manhattan has absorbed 49 percent of displaced tenants into over 3.6-million sq. ft. (334,400 million sq. m.) of space, but even that has not kept the area's overall vacancy rate from rising to 10.4 percent in December 2001 from 5.4 percent in December 2000. Tenants moving into the area included Sidley Austin Brown & Wood, Bank of New York and Morgan Stanley. Lehman Brothers bought the 1-million-sq.-ft. (93,000-sq.-m.) headquarters facility recently completed by Morgan Stanley, which has in turn moved 2,000 employees into a 725,000-sq.-ft. (67,350-sq.-m.) facility in Westchester County that it purchased from Texaco in January. Like other districts downtown, the Class-A office space vacancy rates in Fairfield and Westchester counties virtually doubled from the previous year, reaching 16.9% in Westchester despite the area asking for the least rent of any metro area sector.
Meanwhile, American Express, Merrill Lynch and AON Corp. are all moving back into downtown addresses early this year. And Deutsche Bank has purchased from JP Morgan a 1.64-million-sq.-ft. (152,350-sq.-m.) building at 60 Wall Street for $650-million (including fixtures and furniture), to serve as its North American headquarters.
Key to the redevelopment of downtown New York will be the leadership provided by the Lower Manhattan Development Corp.
"The disaster has put the onus on city planners and the Lower Manhattan Development Corp. to resolve this issue so that the area can attract (and retain) tenants," stated the Colliers ABR Fourth Quarter 2001 market report for the city.
Who's Here for the Duration?
A grant program designed to help the area surrounding the World Trade Center site recover economically is offering $3,500 to $5,000 per employee to firms with 10 to 200 employees willing to commit to downtown for five years. But Colliers forecasts a continuing rise in vacancy rates. Meanwhile, efforts continue to shore up the transportation needs of the island.
"The first requirement for a 21st Century Lower Manhattan is better transportation," said Deputy Mayor Daniel Doctoroff at the Cushman & Wakefield annual economic forecast event in February.
Cushman & Wakefield President of U.S. Operations Bruce Mosler also said government needs to respond quickly in order to lay the groundwork for sustained corporate population.
"It is important to remember that rents are $45 a square foot in the area of the former World Trade Center, while the cost of construction today is approximately $80 a square foot," he said. "Government must subsidize the World Trade Center area's building-rental gap for there to be a sensible economic environment in which development can go forth."
"Companies are planning their long-term future right now," continued Mosler. "While we can debate the immediate need for new development, the longer-term need is clear. It must be tied to demand in order to maintain the market discipline and equilibrium that lenders have most positively applied during the sustained growth period of the late '90's in New York real estate.
"This 'building-rent differential incentive' would make it economically feasible to build facilities attractive to the businesses -- from retail, to small, medium and large companies -- that will help anchor and revitalize not only Downtown, but the future New York City, as well."
Peter Hennessy, managing director of the New York office for The Staubach Co., has similar thoughts about the public sector's role in revitalizing Manhattan for both the near and long term, saying that programs should focus on small and mid-sized private sector organizations.
"They make up the largest component of the drivers of our economic engine, are generally controlled by few decisionmakers, and have the least barriers to relocation," he says. "By offering incentives that benefit both the corporation and the employees, i.e. state credit for social security taxes paid, a local municipal government will not only attract corporations of all sizes, but help stimulate both business and consumer spending by putting money back in both employers' and employees' hands.
"In addition, he concludes, "by having part of the incentive benefit employees there will be a greater level of acceptance by both the relocated employees and new hires."
