An incentives package one New York state Assembly leader dubbed a “Marshall Plan” for Lower Manhattan passed the Legislature in late June, giving hope to those who want to see Downtown’s commercial development finally recover fully from September 11.
The package offers bargains to developers and landlords to lure businesses Downtown, including tax exemptions and rent subsidies, but it may be years before the scope of its effects, big or small, can be determined.
“From what I understand of the incentives package, it only really benefits 7 World Trade Center and the Freedom Tower,” said Richard Persichetti, research manager for Grubb & Ellis. “It’s not going to drive businesses Downtown and it’s not going to help the vacancy rate drop.”
Recent numbers for June show Downtown continuing to lag Midtown South and Midtown in both vacancy rates and with one exception asking rents, too.
The June vacancy rate for Class A office space Downtown was 12 percent barely changed from May according to research from Colliers ABR. The average asking rent in June for Class A space Downtown was $33.92. That’s not much of a change from May for an area that’s been stagnant in its commercial leasing in the past three and a half years compared to markets farther north.
The Class A vacancy rate in Midtown for June was 8.8 percent, according to Colliers ABR. The average asking rent for the usually dominant Manhattan commercial market was $60.57 for Class A space.
The plot for June was the same in Midtown South vacancy rates declined from May, to 5.8 percent for Class A and 10.7 percent for Class B space, which dominates that market. Asking rents for both classes topped $33 a foot. (Midtown South lagged Downtown by 30 cents in average asking rents for Class A space, the sole exception to the dominance of the northern markets in both classes.)
June saw major leases signed in Midtown, including 200,000 square feet at 1251 Avenue of the Americas by law firm DLA Piper Rudnick Gray Cary and 26,000 square feet at 767 Fifth Avenue by Glenview Capital, a hedge fund.
Beyond the numbers and determining the true status of the city’s markets always takes hindsight is the story of a re-emerging Downtown, now backed by government largesse.
“I think [the package] is certainly a positive step,” said Robert Sammons, research director at Colliers ABR. “It’s kind of a shame that all these benefits are necessary considering that rents are already almost half of what they are in Midtown, and that should technically be enough to drive businesses to Lower Manhattan.”
State Assembly Speaker Sheldon Silver, whose district includes Lower Manhattan, compared the incentives package to the Marshall Plan that helped rebuild post-World War II Europe. Silver had based his ultimately successful opposition to the proposed far West Side stadium on a need to revitalize Downtown first.
The package centers around redeveloping the World Trade Center site and stemming the tide of commercial buildings being converted into residences. A $5-per-square-foot incentive will be offered for the first 750,000 square feet of commercial space leased anywhere on the World Trade Center site and a $3.80-per-square-foot incentive for the first 750,000 square feet of commercial space leased at 7 World Trade Center, set to open next year and still without any tenants. The package also eliminates tax incentives that encourage conversion before June 30, 2006, of viable commercial buildings for mixed or residential use.
The original World Trade Center was not fully leased until the late 1990s, Sammons said. Many of its original 1973 tenants were government organizations. Time, then, will be needed to see how leasing in the Freedom Tower and its environs pans out.
But the dropping vacancy rates farther up Manhattan could have more of an effect on Downtown’s immediate future than any action from Albany. Persichetti pointed out that vacancy rates in Midtown dropped to around 5.5 percent in mid-2000, making a further drop in already current low numbers entirely possible.
“Over the next year or two,” Persichetti said, “that’s what will push people Downtown because there won’t be any space left in Midtown and Midtown South.”