Residential market is faring better
Crain's New York Business
By Lore Croghan
March 04, 2002
Six months after the destruction of the World Trade Center, downtown's
office community remains decimated.
Businesses have moved nearly 60,000 employees out of the area, or 15% of the
neighborhood's employment base prior to Sept. 11, according to
TenantWise.com Inc., a real estate brokerage.
A world-famous 13 million-square-foot office complex is now a grave site.
And the fate of another 7 million square feet of damaged commercial
buildings is unclear.
The residential market has more hopeful prospects for near-term revival, as
rent cuts and government incentives start to draw apartment dwellers to the
stricken neighborhood. Thousands of daily visitors to Ground Zero are
swelling foot traffic on what would otherwise be sparsely populated streets.
But the office market is the best barometer of whether the neighborhood can
recover. It's still reeling.
Downtown's vacancy rate has more than tripled in the past year to 13.4%,
according to brokerage Insignia/ESG Inc. More space is available at the
World Financial Center, Ground Zero's elegant neighbor, than at any time
since its mid-1980s construction.
The wholesale departure of financial services firms, the neighborhood's core
tenant base, is a particularly serious problem.
"Sept. 11 was transformational," says M. Myers Mermel, TenantWise.com's
chief executive. "The pillars of the financial services industry, which
made the downtown market, have pulled out of the neighborhood since then."
Economy is no help
Even as the chaos has subsided and bargain-rate rents and incentives are
being offered, businesses are for the most part shunning downtown. The
flagging economy is much to blame, because it's slowing leasing activity
throughout Manhattan. Also, companies that would be willing to move there
are frustrated because no one can tell them exactly how much incentives
would cut their costs, or how to get the money.
"It makes it very difficult for tenants to make a commitment," says Gus
Field, a senior director at brokerage Cushman & Wakefield Inc.
Even the most optimistic real estate executives think the downtown office
market won't start to revive until next year at the earliest, when the PATH
station is rebuilt and the economy picks up. They say full recovery will
require five to 10 years to accomplish, in tandem with the redevelopment of
the trade center site and an improved transit system. So they're trying to
take a long-term view.
"This is a great opportunity to do everything right, and not use the bubble
gum and Band-Aid approach," says Steve Berliner, an executive director of
Insignia/ESG and the head of the firm's downtown office.
The residential market, a much smaller component of downtown real estate, is
starting to mend more quickly.
According to a rough estimate by the Alliance for Downtown New York, soon
after the disaster, between 3,000 and 6,000 people moved out of their
apartments, which was 10% to 20% of the neighborhood's residential
population before Sept. 11.
At Battery Park City, where 9,000 people lived, occupancy dropped 30%. Those
who left were worried about air quality and the disruption of their
But the tide of downtown departures is beginning to turn. Single people and
childless young couples are arriving, drawn by rent cuts of 20% and more.
Developer Richard LeFrak has seen residential interest pick up just in the
last month. Occupants of about 500 of the 1,700 apartments at his Gateway
Plaza complex have decided to break their leases, he says. Of all the
properties in 92-acre Battery Park, his suffered the most damage on Sept. 11
because of their proximity to the Twin Towers.
In recent weeks, Mr. LeFrak's leasing agent, Empire State Properties, has
written 170 new leases. Empire co-founder Debbi Hildreth expects the pace to
accelerate to 50 to 55 rentals per week, because of the Lower Manhattan
Development Corp.'s announcement of grants of up to $12,000 for people
willing to live downtown for two years.
Condominium sales in Battery Park City have also started to revive recently.
"The neighborhood is in the news, and it's positioned as a bargain," says
Bill Graizel of Regatta New York Realty Inc. During January and February,
his two-man firm clinched 12 signed sale contracts for neighborhood
apartments, its strongest early-year performance since its 1990 launch.
Sale prices are an average of 10% lower than before Sept. 11, just enough of
a discount to make buyers feel they're getting a bargain while allowing
sellers to reap profits.
People who move downtown find themselves rubbing shoulders with tourists.
If the flow of visitors keeps up at its current rate, about 2 million people
a year will stand on the Ground Zero viewing platform-as many as used to go
to the observatory at the top of 2 World Trade Center.
A full complement of 6,300 tickets per day is being handed out on weekends,
and nearly that number is dispensed on weekdays other than Tuesday, says
Paula Mayo, the vice president of development and programming at South
Street Seaport Museum, which is handling ticket distribution.
Crowds are filling the seaport's restaurants and shops during their
hours-long wait. Ten percent of the people picking up tickets are stopping
into the museum as well, Mayo says.
The tourists' presence in the neighborhood distresses some residents and
workers, but it shouldn't, says Brendan Sexton, a consultant to the Alliance
for Downtown New York.
"They're not ghouls," he says. "They are in the presence of something bigger
than all of us, and they want to be near it."
Copyright 2002 Crain Communications, Inc