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July 08, 2002

A new report says 81 percent of finance, insurance and real estate tenants whose buildings were damaged or destroyed on Sept. 11 have abandoned Downtown.
- NYP: Tamara Beckwith

A second wave of Downtown office dislocations might be on its way. That's what a new report from TenantWise.com worries.

The report issued last week found half of the square footage occupied by 81 percent of tenants whose buildings were damaged or destroyed on Sept. 11th have already abandoned Downtown, including 14 of the largest employers like Lehman Brothers and Morgan Stanley. That represents about 53,619 jobs within the so-called FIRE sector - Finance, Insurance and Real Estate.

Tenantwise found tenants that had occupied 53 percent of the 34.5 million sq. ft of destroyed and damaged properties - the equivalent of 18.3 million square feet - will remain Downtown.

But tenants occupying 45 percent of the space, totaling 15.6 million sq.ft., have already opted to leave, with 86 percent of the square footage represented by the larger tenants from destroyed properties moving out of Lower Manhattan.

With leases representing 162,000 jobs expiring over the next five years, and even more over the next decade, firms that could not afford to walk out on their current leases may, when their lease expires, take their "one free chance to leave," and move elsewhere, said M. Meyers Mermel, CEO of Tenantwise.

"For smaller companies, it will be a question of the business climate when their lease comes up for renewal, the available incentives, the emotional state of their employees, and the location of their own clients at that time," Mermel said.

And when the expected decade-long rebuilding jackhammers start up, they could jar other firms out of their lethargy and into a relocation mode.

Meanwhile, Prudential and Instinet may both pull people from 199 Water Street, sources told The Post, while other firms, including Goldman Sachs, are quietly offering sublease space without officially placing it on the market, skewing the true vacancy rate kept by real estate brokerages.

Currently, the vacancy rate for the remaining 84 million sq. ft. of inventory is 20 percent, Mermel said.

Tenants that leased 3.6 million sq. ft in New Jersey and outside of Manhattan took 18,440 jobs with them.

Many larger companies also split their work forces among two or more sites.

"The largest employers have gone and the discussion is that the incentives will get things going," Mermel said. "But these tenants have left entirely.

When the recession cycles back, they will not be there to rehire. The question will have to be, where does the city and state focus their retention and relocation dollars?"

Copyright 2002 NYP Holdings, Inc.

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