20% of Office Space Lost in Lower Manhattan
As much as 20% of all office space in lower Manhattan may have been destroyed or damaged by Tuesday’s terrorist attack on the World Trade Center, forcing many businesses to grab offices in far-flung New York suburbs, real estate brokers and researchers said Friday.
Estimates of lost space have risen dramatically as it becomes clear that a large number of buildings near the demolished World Trade Center towers have been destroyed or damaged by falling debris or other causes.
Perhaps 27.5 million square feet of space--nearly as much as in all of downtown Los Angeles--has been knocked out of the marketplace, according to a report by real estate firm Grubb & Ellis Inc.
On paper, at least, Manhattan has enough vacant space to absorb the loss. But some of that space is considered to be of poor quality and is in amounts far too small for the largest occupants, which need acres of floor space.
As a result, many of the estimated 650 tenants in urgent need of offices are looking and signing deals across the Hudson River in New Jersey, to the north in Westchester County and to the east in Brooklyn and Long Island.
“There is not remotely enough space,” said New York broker Mark S. Weiss of real estate firm J. Julien Studley. “We’re going from [high-quality space] to whatever we can get.”
A spokesman for Larry Silverstein, the developer who owns the lease on the World Trade Center, said the real estate veteran wants to rebuild the ruined complex. Such an effort would take years, however, and would be of little help to the property’s hundreds of tenants now scrambling for quarters.
“In this situation, you got companies that need to be operational [in a new office] Monday morning,” broker David Toomey said.
Much of the attention has been focused on the collapse of the twin World Trade Center towers, which contained about 10 million square feet of space. The complex contained nearly 4 million square feet of additional space in adjacent buildings that also collapsed or suffered severe damage.
Across the street, the sprawling World Financial Center along the Hudson River suffered varying degrees of damage. One of the property’s major tenants, American Express, reportedly has leased replacement space in New Jersey to house its headquarters and about 4,000 employees.
The 6-million-square-foot World Financial Center complex probably will not be fully operational for as long as a year, said Jonathon Litt, a Salomon Smith Barney real estate analyst, in a report.
Despite enjoying one of the nation’s lowest vacancy rates, about 7% before the attack, Manhattan landlords are refraining from jacking up rents in the face of the huge and sudden demand, brokers say. However, with anxious tenants trying to secure huge blocks of space in a matter of days, there is little room for negotiation and landlords are getting their listed, or “asking,” rents.
Toomey, of Cresa Partners in Los Angeles, said his client Universal Vivendi has received many calls seeking part or all of the 250,000 square feet the firm is subleasing in a Midtown Manhattan skyscraper. The entertainment company is looking at ways it can move out of the space sooner than planned to make room for new tenants.
“It’s a bit of a feeding frenzy,” Toomey said.
The hunt may become even more frantic and costly next week as more firms disrupted by the terrorist attack get their bearings and search for new homes, said Whitley Collins at real estate firm CB Richard Ellis.
“When you’ve got five companies looking at the same space,” Collins said, “it’s going to start to get ugly.”
Large tenants--those needing more than 25,000 square feet--will find far fewer options than smaller firms if they limit their search to Manhattan. The largest of the displaced tenants, such as Morgan Stanley, probably will be forced to break up their operation among several locations in New York or seek space outside the city, said Jay Spivey, director of analysis for Costar Group, a real estate research firm.
“There are very limited [large] blocks of space available,” Spivey said.
Many executives are making leasing decisions without knowing if their moves will be permanent or temporary, because they eventually may be forced to return to their old offices. Most commercial leases require tenants to return to damaged buildings once repairs have been completed in a specified period of time, most often a year. But very few landlords are willing to lease space--especially in large amounts--on such short terms.
“They might have [to pay for temporary space] for longer than they want to,” said Ray O’Keefe, regional director for Grubb & Ellis.
The relocation of such high-profile firms as American Express to temporary offices in New Jersey and other parts of Manhattan has raised fears about lower Manhattan’s long-term prospects.
It would take years to reconstruct the millions of square feet once housed in the World Trade Center, leaving little expansion room for major corporations in the meantime. In addition, the disruption caused by reconstruction and recovery efforts may lead more downtown tenants to seek space elsewhere, brokers said.
“The chances of tenants moving back to downtown are slim,” Collins said.
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Scrambling for Space
About 20% of the lower Manhattan office market--15.5 million square feet of space--was destroyed in Tuesday’s terrorist attack on the World Trade Center. An additional 12 million square feet of office space may have been damaged in the aftermath.
Office Buildings Destroyed
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Bldg Size 1 WTC 4,761,416 2 WTC 4,761,416 7 WTC 2,000,000 5 WTC 783,520 4 WTC 576,000 6 WTC 537,694
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Office Buildings Damaged
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Bldg Size 2 WFC 2,591,244 3 WFC 2,263,855 1 Liberty Plaza 2,121,437 1 WFC 1,461,365 1 Bankers Trust Plaza 1,415,086 140 West St. 1,171,540 90 Church St. 950,000 195 Broadway 875,000 22 Cortland St. 668,110 90 West St. 350,000 130 Cedar St. 135,000 114 Liberty St. 69,004 26 Cortland St. 25,000 106 Liberty St. 18,000 110 Liberty St. 6,000
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Hotels Damaged
55 Church/Millennium Hotel
3 WTC/Marriott World Trade Hotel
Source: Grubb & Ellis
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Bloomberg News was used in compiling this report.
