Office Leases are being signed again, but
revival will take a while
By Alan J. Wax and Julie Claire Diop,
March 11, 2002
Louis V. Simone is back at work. In the same building, at the same desk,
looking through the same window where he saw the horrors of Sept. 11 unfold.
Simone, a branch manager at the freight company New Wave Transport Inc., was
at work in his bright corner office on the third floor of 30 Vesey St. when
the first of two jetliners crashed into the World Trade Center.
Debris started coming down, said Simone, who has a large window that looked
diagonally across Church Street to the World Trade Center. We saw people
jumping. It was a horrific sight.
Simone, of Forest Hills, and six co-workers had to move to the offices of an
affiliate in New Jersey until windows shattered by the collapse of the trade
center could be replaced and dust cleared from the century-old 18 floor
New Wave Transport returned on Jan. 22 and now, through his new windows,
Simone has a direct view of a hold and of cranes, and on the periphery, of
tourists visiting Ground Zero. Despite the changed view and the fact that
about half the offices in his building remain vacant, Simone is upbeat.
It s great to be back. Its home, Simone said of the office he has occupied
for 14 years. Now we look at it as if the damage is done and the rebuilding
stage is starting. It s nice to be here for the rebuilding.
New Wave is just one of the businesses returning to lower Manhattan six
months after the terrorist attacks. Some businesses are even expanding,
commercial property brokers said.
But even with office space cheaper and more plentiful than it was before
Sept. 11, some in the real estate industry are not overly sanguine about
prospects for a quick turnaround of a market that had begun deteriorating
almost a year ago. The office vacancy rate downtown, 4.8 percent in the
first quarter of 2001, has swelled to 10.5 percent despite the destruction
of 12 million square feet at the World Trade Center and damage to another 20
million square feet in the surrounding area.
Average rents have dropped from $43.79 per square foot a year ago to $38.92
in February, according to Cushman & Wakefield Inc.
The Manhattan office market had been extremely tight, with the overall
vacancy rate falling to a 20 year low of 5.1 percent at the end of 2000 and
the rate for Class A space, full of amenities, at a mere 1.7 percent. Many
landlords, taking advantage of the tight market, persuaded tenants to renew
their leases early (this had the same impact as last fall s zero-percent
auto financing had on car sales, which boosted sales short term but resulted
in fewer this year). Then the dot-com collapse hit, and space-rich Wall
Street firms, experiencing a downturn in their businesses due to slumping
stock prices, decided to put their own excess space on the market.
The result: Downtown vacancies spiked quite the opposite of what had been
expected immediately after the destruction of the trade center, because so
much office space had been lost and some brokers said they expect the
vacancy rate to climb as high as 17 percent this year before any recovery is
Still, among commercial real estate brokers there is a sense of cautious
optimism about lower Manhattan, which remains the second-largest central
business district in the nation, smaller only than midtown. Brokers said
leasing activity is picking up, most notably on the east side of the
financial district, and some former World Trade Center retailers are looking
for space along Broadway.
Tenants are starting to make deals, said Steve Berliner, executive director
of the downtown office of commercial property broker Insignia/ESG. Downtown
has made a great recovery. On Sept. 12 there was a realization that a lot of
major tenants would relocate to midtown. In fact, very few have.
Insignia/ESG moved back to One Liberty Plaza, which is opposite Ground Zero,
in January and Berliner, for one, is not bothered by the view from his
window. Quite frankly, at this point, it s really a construction site. I
have no issue working here and I overlook the 16-acre site.
The brokers optimism, viewed by some industry colleagues as attempts to drum
up business in a lack-luster market, also may have been buoyed by a speech
late last month to the Real Estate Board of New York by John Whitehead,
chairman of the Lower Manhattan Development Corp. Whitehead, who calls
himself Downtown s biggest cheerleader, said the emergency problems Downtown
are being resolved and outlined plans for a memorial, performing arts center
and possible new offices and residences rising on the former trade center
M. Myers Mermel, president of TenantWise.com, an online office
brokerage that has been tracking the exodus of businesses from Lower
Manhattan since the attack, now estimates that 55 percent of the businesses
displace by the Sept. 11 attacks have indicated that they will return.
Businesses that aren t returning have largely relocated to midtown, New
Jersey and elsewhere.
Among the most prominent returnees is the big financial services company,
Merrill Lynch, which occupied two buildings at the World Financial Center.
In late October, it began moving 5,000 employees back to Building Four in
the office complex that is part of Battery Park City. The building is owned
jointly by Merrill Lynch and Toronto-based Brookfield Properties.
In recent weeks, another 1,000 workers began returning to Two World
Financial Center, where Merrill Lynch leases the entire building, but the
investment firm has decided to give up about 450,000sf for sublease in the
building that overlooks the former trade center site, said spokeswoman
Those Merrill Lynch employees who have returned are squeezed fairly tight,
said Judy Mareiniss, who after being out of work at half pay for several
months recently returned to her office.
Every bit of space is used. We ve turned closets and conference spaces into
offices, said Mareiniss, who arranges meetings for Merrill.
Another big occupant of the World Financial Center, American Express Co.,
which previously said it would not return all its employees to Building
Three in the complex, now is saying it will bring back 3,500 employees who
were dispersed to New Jersey, Stamford, Conn., and other parts of Manhattan
after the collapsing towers badly damaged its building. The move will take
place next month, said spokeswoman Molly Faust.
One World Financial Center, a 40-story, 1.6million-square-foot tower, is
ready for re-occupancy, Brookfield officials said, but as of last month,
only a few tenants had returned. Most of the space in the building is leased
by Dow Jones & Co. for The Wall Street Journal and other businesses and by
Lehman Brothers, neither of which has returned.
Meanwhile, Barclays Capital Inc. which has 104,000 square feet at 222
Broadway, a building owned by Merrill Lynch, renewed its lease despite a
decision to take new space last year in midtown.
We love it downtown, said Barclays spokeswoman Linda Wynns.
And brokers said a government agency is expected to sign a lease soon for
two floors at 33 Maiden Lane, an office tower just three blocks east of
In addition, brokers said they expect the big law firm Thatcher Proffit and
Wood, which had 120,000 square feet in Two World Trade Center, to again take
space downtown, possibly in one of Brookfield s buildings. Omer S.J. Jack
Williams, managing partner, said no decision had been made about relocating
from its current offices at 11 W. 42nd Street.
We re starting to see a fair amount of increase in the activity downtown,
said Kenneth Krasnow, senior managing director of property broker Cushman &
To be sure, brokers said many of the leases being signed downtown are not
for huge spaces, but are for offices of 10,000 square feet to 30,000 square
Building sales are also going forward, among them United Federation of
Teachers purchase of 50 Broadway, a 340,000 square foot building.
Also, brokers point to the purchase of J.P. Morgan Chase s 47-story
skyscraper at 60 Wall St. by Deutsche Bank for its new headquarters.
Among other positive signs seen by brokers are speedy cleanup of the Ground
Zero site, expected to be completed by the end of May, plans to reopen the
No. 1 and No. 9 subway line stops downtown later this year and the PATH
station sometime in 2003, and the reopening of downtown retailers, notably
the Century 21 department store almost two weeks ago.
As the cleanup has gone along and efforts have been made by the city to
reopen the streets, we ve had a dramatic change in the quality of life down
there, said Brian Waterman, executive vice president of Newmark and Co. Real
Also, a national economic recovery could lead to an upturn in Wall Street s
fortunes and, in turn, boost the downtown office market. Downtown is still
very financial-services driven, Berliner said.
Brokers said the widening spread between office rents in midtown and lower
Manhattan ultimately will force businesses to give serious consideration to
renting downtown. At the end of 2001, direct asking rents in midtown
averaged $62.70 per square foot; in downtown, the figure was $48.77,
according to Cushman & Wakefield.
There s a fair amount of value players, looking around as companies are
realizing that there s a significant spread between midtown and downtown,
Landlords haven t dropped their asking rents but are making deals below
those rates, Newmark s Waterman said. Merrill Lynch, for example, is asking
$55 per square foot for its space in the World Financial Center but is
looking to make deals in the mid-$40s, said Peter Riguardi, vice chairman of
property broker Colliers ABR. Landlord concessions and government
incentives, such as a federal program aimed at attracting or retaining
businesses, could result in effective rents in the low to mid $30s, he said.
One broker who specializes in representing tenants, Phil Sprayregen, a
senior vice president in C.B. Richard Ellis downtown office, takes a
contrary view about downtown s prospects.
I think downtown is in some of the worst shape it s ever been in, he said.
Sprayregen said places such as Jersey City are lower-priced alternatives for
companies seeking back-office space, and that tenants won t consider lower
Manhattan unless they can get rents in the high $20s or low $30s.
And there are downtown workers whose psyches remain fragile six months
later. One 31-year-old analyst at Merrill Lynch, who declined to give his
name, said he refuses to look out his office window, which faces Ground
Zero, and is distressed by vendors hawking World Trade Center souvenirs.
Nothing will ever be the same. There s a big hole in the city, he said.
Hot-dog vendor Nikolaos Goudelis, who has spent the past 25 years at the
southwest corner of Church Street and Park Place, said he misses some of his
old friends. Many of the buildings on his corner are still vacant. At nearby
100 Church St., a 20-story building, only two floors are occupied.
Goudelis, however, refuses to give up and thinks of his corner as home.
Maybe I'll retire here, he said.
Copyright © 2002, Newsday, Inc