Vacancies Down Around Ground Zero
Low vacancy signals return of the downtown financial district

by Russell Boniface
Associate Editor

Summary: According to a February market report by New York-based real estate investment firm Colliers ABR Inc., downtown Manhattan “continued to be the star” in the city’s commercial market, with its Class A office vacancy rate dropping from 6.8 percent in January to 6.6 percent in February, its lowest since August 2001. The report also points out that the average asking downtown commercial rent, while remaining significantly below midtown, is climbing, closing February just below the $50 per square foot mark.

With space becoming harder to find in midtown Manhattan, downtown Manhattan has become a low-cost alternative. The Colliers ABR Inc. market report states last month’s 6.8 percent vacancy rate is down from 12.3 percent one year ago. Examples of increasing occupancy include the World Financial Center, just across the street from the World Trade Center site, which is nearly full, and 7 World Trade Center, which was rebuilt and is two-thirds leased since opening last May. As a result, monthly rents in downtown Manhattan are just below $50 per square foot, up from $35 two years ago.

Monthly rents in downtown Manhattan are just below $50 per square foot, up from $35 two years ago

Downtown stages a comeback
The Associated Press reported last month that Silverstein Properties, which owns the 16-acre former World Trade Center site, and industry experts have theories why downtown has rebounded:

• The creation of thousands of new apartments downtown
• Billions of dollars to rebuild two major transit hubs
• A more expensive, space-squeezed midtown Manhattan market.
  

“Six percent vacancy is very low, about half the national average,” says Kermit Baker, PhD, Hon. AIA, the AIA’s chief economist. “It is somewhat surprising that people have come back to lower Manhattan. They haven’t been spooked out by the World Trade Towers having been there. That area is doing just as well as the rest of Manhattan, which is maybe a surprise or maybe not a surprise, depending on what you think of the security risks in that area.”

Six percent vacancy is very low, about half the national average

The New York real estate market overall has been flooded with capital recently, due to hedge funds, foreign investors, and private equity. “The Manhattan market is very tight,” explains Baker. “The economic base of Manhattan is very heavily dependent on financial services, and those markets are doing well.”

In addition, investment firms have expressed interest in buying the 2.6-million-square-foot Freedom Tower, controlled by the Port Authority of New York and New Jersey. Currently, the Freedom Tower has two major tenants, The State of New York and the General Services Administration. “Obviously a lot of space was lost in the downtown area with 9/11, so there is a shortage of supply until that comes back on line,” says Baker. “Apparently, demand is still strong, so that’s driving down vacancy rates and driving up rents.”

In the works
Silverstein Properties plans to build Towers 2, 3, and 4 on the 16-acre site, comprising 6.2 million square feet. The buildings are scheduled to be completed by 2013. Tower 5, owned by Port Authority, is also being planned.

It truly has become a neighborhood, both for office and residential users

“All forces have come together to create a dramatic resurgence for that neighborhood,” says Robert Sammons, director of research, Colliers ABR, Inc. “It truly has become a neighborhood, both for office and residential users. It will only become more so in the future with the completion of the various transportation projects, the street improvements and other infrastructure, and retail. It will be a mixed-use community. Add the interesting ‘historic’ layout and it’s the culmination of a living and breathing city center with all the parts in place, not some ‘new urban development’ created from scratch.”

Baker predicts the economic future of downtown depends on the health of the Manhattan economy. “It’s doing well recently. I don’t think there is any indication of it starting to soften.”