Optimists keep the faith; many others
Crain's New York Business
By Matthew Flamm
April 22, 2002
After Sept. 11, the New York division of the Union Bank of California
regrouped, squeezing 106 employees formerly housed in the World Trade Center
into the Jersey City offices of its parent, Bank of Tokyo-Mitsubishi. But
like other companies displaced by the tragedy, Union Bank soon began to
search for a permanent home.
After shopping in midtown, downtown and Jersey City, the bank chose a new
home near its old one. Late last month, it moved into 23,000 square feet at
40 Wall St.
Rent at 40 Wall was 20% to 40% lower than that for similar space in midtown.
Furthermore, employees found the commute to New Jersey onerous, and the
address had no cachet.
"Downtown Manhattan has a worldwide presence," says Abram Harris, vice
president of corporate real estate for Union Bank of California, which is
based in San Francisco. For a bank division that deals mostly with
international clients, that's crucial.
The terrorist attack on Sept. 11 sent almost 30,000 jobs to the suburbs and
gave new credibility to consultants who urge companies to disperse their
employees geographically. But some insist that the export of workers to the
suburbs will eventually subside.
"There are companies that are doing contingency planning for business
continuity purposes, and some of those locations have been outside New
York," says Kenneth Krasnow, senior managing director of the New York
metropolitan area for real estate services firm Cushman & Wakefield Inc.
"But the good news is that such companies have clearly decided to commit the
bulk of their people and operations to Manhattan."
250 and up
Many companies are deciding that it doesn't make sense to split their
"There is a critical mass needed in terms of head count before splitting up
makes operational sense," says Paul Revson, an executive managing director
at real estate services firm Julien J. Studley Inc. He says that a company
with fewer than 250 employees has no need to separate operations.
Some companies are interpreting geographic diversity in a Manhattan-centric
way: They are keeping an office downtown while also looking for space in
midtown. Others are dividing their operations among different midtown
"What 9/11 proved more than anything was that access to (suburban)
facilities becomes virtually impossible in a large-scale incident," says
Richard Coles, vice president at Emmes Realty Services. The property owner
and manager has leased space in midtown to financial services firm-and lower
Manhattan exile-CIBC Oppenheimer. "It doesn't do much good to have a
million-square-foot facility in Jersey City if you can't get your people
One sign of the market for backup space in Manhattan is The Durst
Organization's decision to proceed on breaking ground-with discussions in
progress but no tenants signed up-for its NYCyberCenter. The
300,000-square-foot facility, between West 57th and West 58th streets and
11th and 12th avenues, will have its own power supply.
As existing space in Manhattan fills, pressure may build for new office
"We're in a recession, and yet midtown still has a real dearth of bulk
space," says Robert L. Freedman, vice chairman of real estate services firm
GVA Williams. Though Ground Zero and selected midtown sites will be
developed first, he sees development of the Far West Side-between 28th and
42nd streets west of Ninth Avenue-as "a historical inevitability," if
accompanied by massive infrastructure commitment.
"It's a longer-term solution to space issues," adds Daniel Doctoroff, deputy
mayor for economic development and rebuilding.
Making new areas accessible
He believes that tax-increment financing-using increased tax revenues to pay
off infrastructure bonds-will eventually pay for the extension of the No. 7
subway line into that neighborhood. "There's a lot of work to be done in
terms of environmental impact statements and engineering and design studies,
but hopefully, that will get started soon," Mr. Doctoroff says.
Nevertheless, others argue that the transplanting of at least some jobs to
the suburbs is unstoppable. They point to Morgan Stanley's decision to move
as many as 2,000 people to Texaco's former Westchester site, as well as the
many firms that have put people in New Jersey.
Choosing where to grow
"Firms may decide they're going to cap growth in operations that have to be
in New York City, and deploy growth elsewhere," says Dennis J. Donovan,
director of Morristown, N.J.-based The Wadley-Donovan Group, a Grubb & Ellis
company that advises on corporate location. "I think the net result will be
job increases in Manhattan, but at a lower rate than in the past."
Al Gutierrez, a vice president in the New York suburban office of CB Richard
Ellis Inc. in Stamford, Conn., recently helped a prominent Manhattan law
firm find 11,000 square feet in Westchester County. He is working with other
companies that are looking for more than 100,000 square feet.
"I believe toward the end of the year, we're going to have several
announcements of New York City firms looking at creating suburban
facilities, and I think that's going to continue," Mr. Gutierrez says.
Some say firms that have moved divisions to the suburbs will expand there
instead of in Manhattan.
"Lower Manhattan was anywhere from 40% to 60% dependent on financial
services firms for leasing, and now that those firms are splitting up and
going elsewhere, so is their growth," says M. Myers Mermel, chief
executive of brokerage TenantWise.com.
There could also be a ripple effect, he warns: "There have been signs that
everybody that lived off financial services-accounting companies, law firms,
advertising-will be leaving to follow clients."
Copyright 2002 Crain Communications, Inc