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.

Low-cost cachet

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 operations.

"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 buildings.

"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 there."

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 development.

"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."