New York: No One Is Betting Against It.
But, Then Again, Few Companies Are Betting For It
Effects: Higher Availability Rates, Decentralization and Dispersion
October 22, 2001
TenantWise.com has emerged as the leading provider of information concerning
the dislocation of World Trade Center (“WTC”) tenants and the tenants of
surrounding, damaged properties. As the first provider of a status report on
all tenants affected by the WTC tragedy, TenantWise.com has supplied data to
The New York Times, The Wall Street Journal, The Daily News, Newsday, The
Post, (See www.tenantwise.com/press.asp for further details) and others as
they reported on the tragedy, its effects on the New York economy, and the
future of the real estate market in Manhattan and Downtown.
Now, one month after the attack, we are able to assess the effect of the
disaster more clearly and make projections about the future of Manhattan’s
office market. We have learned that, while the majority of corporations and
their employees are committed to doing business in Manhattan, the tenants
who represent the largest blocks of square footage in the affected area have
chosen to backfill their existing office space in other locations, move to
New Jersey, or relocate to Midtown. Although backfilling in Midtown and
moving to New Jersey have become the solution for many of the largest
tenants, the change in Manhattan availability rates may not be as pronounced
as one might expect after such a great amount of office space was destroyed
The properties of the WTC that were destroyed account for 13.4 MM sq. ft. of
office space. The surrounding properties that were damaged account for 18.5
MM sq. ft. of office space. (For further details, see Special Report:
Damaged Areas at www.tenantwise.com.) In total, over 31.9 MM sq. ft. has
been destroyed or damaged, a loss of 60% of Downtown’s Class A office space.
TenantWise.com research indicates that there were 187 non-governmental
tenants over 10,000 sq. ft. in size in the WTC buildings and the 15 damaged
buildings surrounding the WTC. It is anticipated that it will require 5
years to rebuild the destroyed properties and from 2 months to 1 year to
repair the damaged properties. (This time frame may also lengthen if the ash
contains unacceptable levels of asbestos. In that case, interiors will have
to be abated, demolished and then reconstructed.)
We have learned that 47 of 73 tenants with over 10,000 sq. ft. from the
destroyed buildings will backfill Midtown space or relocate to Midtown.
Their square footage requirements account for 68% of the square footage that
the larger tenants from destroyed buildings represented as a whole. The
second most popular destination for destroyed building tenants is New Jersey
with 8% of the total square footage relocating there. While 57 tenants of
114 larger tenants from damaged buildings report that they intend to
reoccupy their offices downtown, (50% in number) they actually only
represent 24% of the square footage that the larger tenants from damaged
buildings represented. Another 25% of the square footage from damaged
properties will relocate to New Jersey, and 26% will go to Midtown. As the
largest tenants disperse, it is clear that the majority are leaving Lower
Manhattan for Midtown and New Jersey.
From tenants in both destroyed and damaged buildings, a total of 8.3 MM sq.
ft. is being backfilled or newly leased in Midtown, and 3.7 MM sq. ft is
being backfilled or newly leased in New Jersey, for a total of 12 MM sq. ft.
Together, the tenants from destroyed and damaged buildings indicate that a
total of only 3.8 MM sq. ft., only 12%, of the 31.9 MM sq. ft. that was
destroyed or damaged – have announced commitments to remain in or relocate
to Lower Manhattan.
Before the attack on the World Trade Center, availability rates were 9.05%
in Midtown, 7.60% in Downtown, and an overall 8.67% in Manhattan. We
conclude that, if the corporations who have not indicated their plans for
relocation follow the same patterns of relocation as the other companies
that have announced plans, and if governmental tenants stay Downtown,
availability would decrease by only 2.6%, 0.13% and 1.95% respectively, for
Midtown, Downtown, and Manhattan as a whole.
Destroyed Property Overview
TenantWise.com determined that 73 tenants of over 10,000 sq. ft. in size
occupied the World Trade Center complex as of September 11th. TenantWise.com
has contacted these larger tenants and 60 of those surveyed have made plans
for relocation and 53 of the 60 have made plans to relocate outside of Lower
Manhattan. These 53 tenants account for 86% of the square footage of the 73
larger tenants surveyed. These destinations are only indications of deals in
progress and some may be reversed, however only 13 companies from the
destroyed buildings remain undecided and represent 10% of the square
Surprisingly, while the largest portion of square footage from destroyed
property tenants is relocating to Midtown, 42% of this space relocated to
Midtown represents backfilling of already committed space and, as such, does
not represent new leasing activity. The impact that this will have on
Midtown availability rates, coupled with an additional 8% of square footage
moving to New Jersey, is significant. One would expect that the transfer of
occupancy in 5 MM sq. ft. from larger tenants to Midtown would consume much
of the vacant space that Midtown had to offer, however, the significant
backfilling movement causes Midtown space availability to decline only 2.9MM
from the new leasing activity of tenants from destroyed properties.
For complete information on all 73 tenants from destroyed properties, please
view Special Report: Tenant Relocation Summary at www.tenantwise.com.
Damaged Property Overview
To examine relocation from the perspective of companies that have the option
to return to their offices, either in the near or not-so-near future, one
discovers the lack of enthusiasm by corporate leaders to continue their
business operations in Lower Manhattan. There are obstacles to
re-establishing a business Downtown. 17 tenants, representing 53% of the
total square footage of the damaged properties, have already committed to
relocate in Midtown and New Jersey. 57 of the total of 114 companies located
in the damaged properties have stated their intentions to resume operations
in Lower Manhattan. They represent only 24% of the total square footage of
the damaged properties. 37 companies representing 17% of the square footage
of the total damaged properties have not indicated whether they will return
once repairs are complete.
For complete information on all 187 tenants from destroyed and damaged
properties, please view Special Report: Tenant Relocation Summary at
While it is clear that companies are supportive of the City and State of New
York in its time of crisis, it is also clear that many are not betting on
the future of Lower Manhattan. The decline of Lower Manhattan was predicted
before in the early 1990’s, when availability rates there exceeded 23%.
However, a rebounding economy and growth of the technology sector rescued
the real estate market at that time. Given the recession now underway, the
challenges faced by the Lower Manhattan market make a quick recovery
Given that tenants representing 82% of the square footage occupied by larger
tenants of the destroyed and damaged properties have reported a destination,
it is possible to project the effect that the dislocation of all tenants
into permanent locations will have over the next twelve-month period. We
know that the larger tenants account for 19.6 MM sq. ft. of the 31.9 MM sq.
ft. that compose the destroyed and damaged properties. Given that
approximately 5,000 people were lost, that means, sadly, a commensurate loss
of 1.25 MM sq. ft that will not immediately need to be replaced. 10.9 MM
square feet remains comprised of non-governmental tenants under 10,000sf in
size, and governmental tenants of all sizes. Making the assumption that all
1.8 MM sq. ft. of governmental tenants remains Downtown, this leaves only
9.2 MM sq. ft. of non-governmental tenants whose destinations are unknown.
If we assume that the square footage of the unaccounted for and undecided
tenants follow the existing pattern, availability rates may be as follows:
||Availability If Government Tenants Remain Downtown
And Unaccounted/ Undecided Follow Patterns
We have found that from the 31.9MM sq. ft. of damaged and destroyed
properties, only 8.4 MM sq. ft. will have an impact on Midtown availability
rates and only 152 K sq ft. will affect Downtown availability rates.
Availability rates calculated above also do not reflect potential job
layoffs, nor do they reflect the low-density layouts of many tenants. The
ability some of the larger tenants had to absorb employees into existing
space gives one a sense of the unused space currently being held on the
books by companies in Manhattan.
TenantWise.com estimates that large financial service firms have moved
approximately 4.4 MM sq. ft. of operations away from New York to New Jersey,
Connecticut, and elsewhere. Large financial service firms are responsible
for the majority of this movement that represents a departure of 17,600
jobs. Add this to an estimated 5,000 people who lost their lives and 22,600
jobs have been lost in over one month’s time.
Of the 187 tenants surveyed, new commitments to Lower Manhattan will account
for only 1.9 MM sq. ft., assuming that governmental tenants of all sizes
remain Downtown. Tenants representing only 9% of the 31.9 MM sq. ft. that
was occupied have indicated plans to resettle their existing leased offices
in damaged properties Downtown. The WTC Liberty Stimulus Package is clearly
needed to make relocation and resettlement back to Lower Manhattan a
reality. If companies do not purposefully move back to reclaim damaged
space, then Downtown landlords will face an even tougher challenge in
re-leasing their buildings in an ever more negative environment. The
greatest period of risk is the next five years while rebuilding is taking
place. If leases roll on a ten-year cycle, tenants representing a full 47 MM
sq. ft., or 188,000 jobs, will also have the option of relocating before
Downtown can be rebuilt.
As to the assertion that tenants are not relocating to Lower Manhattan due
to the lack of available space, we have found 23 blocks of space, each over
100,000 sq. ft. available in the area.
We have heard from business leaders that it is not wise to bet against Lower
Manhattan. We think it is time for business leaders to bet for it.
further information contact::
|M. Myers Mermel
Chief Executive Officer
Chief Financial Officer
© Copyright 2001, TenantWise.com Incorporated. All Rights