The future of Lower Manhattan is not in doubt. It will finish recovering from September 11. But what will its real estate makeup be when that recovery finishes?
Some real estate analysts point to Battery Park City for an answer. In the 1990s, according to a market analysis by CB Richard Ellis, Battery Park City was roughly one-third residential and two-thirds commercial. By 2008, after fresh construction that includes the new Goldman Sachs headquarters and additional housing, the neighborhood should be about half residential and half commercial.
All of Lower Manhattan may see a similar split, despite doubts that millions more square feet of office space can be absorbed in an area where residential development is more lucrative. Lower Manhattan is a place where huge blocks of office space, like the 1.7-million-square-foot 7 World Trade Center, are coming onto the market with few tenants. Mayor Michael Bloomberg told reporters shortly before his re-election Nov. 8 that plans for more office space at Ground Zero should be re-evaluated, perhaps in favor of housing and hotels.
Others, though, see a future Lower Manhattan where sought-after commercial and residential complement each other, as in Battery Park City.
“There’s a constant need of office space,” Larry Silverstein, the major Ground Zero commercial leaseholder, told The Real Deal, “and the market has shown this need year after year, even in the worst times. There were 107 million square feet of [office] space available in Lower Manhattan before September 11. This is now down to 85 million today. When we put back all of the office space we’re going to be putting back at the trade center, all we’re going to be up to is 95 million feet.”
Silverstein and others point to several factors that show a Lower Manhattan of both commercial vibrancy and 24-7 livability. For one, Lower Manhattan’s office space remains cheaper than Midtown’s an October market analysis by Colliers ABR put average asking rents Downtown at $31.36 and in Midtown at $49.88. Also, big blocks of space are disappearing from Midtown, and Midtown South’s inventory continues to tighten, which will presumably force companies to head Downtown.
Once there, according to CBRE, they’ll find a young office inventory: About 45 percent of Lower Manhattan’s inventory today was built after 1970. If planned and potential office development is added into the equation, 50 percent of the office space in the area will be post-1970; about 10 percent of it, in fact, will be post-2005.
These new tenants will also find improved transit hubs and housing lots of housing. As of October, 20 commercial buildings in Lower Manhattan comprising 5.6 million square feet were planned for conversion to residential, according to CBRE. That brings the area’s total residential conversion over the last decade to 12.6 million square feet.
Should the employees of the relocated tenants occupy this housing, then retailers would spring up to serve them and their colleagues coming in over the revamped transit systems. And so the logic goes until Lower Manhattan becomes, in a few years’ time, a 24-7 community.
“We’re seeing all the signs of a nice recovery to continue down there,” said Ken Krasnow, executive managing director and head of Cushman & Wakefield’s New York operations. “And I think that’s the key here: It’s continuing. It’s already under way.”