Trending
Downtown filling up
Large office deals grow each year since Sept. 11
The five-year anniversary of the terrorist attacks seems like a good time to take stock of the revival of Lower Manhattan. According to a survey by Jones Lang LaSalle, with additional data gathered by The Real Deal, commercial tenants are increasingly signing big leases.
The survey, which ranks the top 25 biggest leases signed Downtown since Sept. 11, is topped by deals for space signed last month at Ground Zero buildings, with Moody’s as well as the city, state and federal government and the Port Authority taking space.
The rankings show growth in the number of big leases signed each year since the attacks. Just one of the top 25 leases was signed in 2001 and two in 2002. There followed an increasing acceleration to three in 2003, six each in 2004 and 2005, and seven for 2006 so far.
At the top of the list is last month’s tentative agreement by the federal and New York State governments to lease 1 million square feet in the Freedom Tower, though the deal isn’t finalized yet.
A deal by Moody’s Investors Service, also last month, for 600,000 square feet in 7 World Trade Center, was second on the list, tied with two other Ground Zero leases.
The Moody’s lease (for more than one-third of the building) is an expansion for the credit rating agency, which is relocating from its current offices around the corner at 99 Church Street. The lease brought occupancy at 7 World Trade Center to 50 percent — with the building now hosting a wide range of companies.
“You can see the tenant base is growing,” says Ground Zero leaseholder and 7 World Trade developer Larry Silverstein, president of Silverstein Properties. “We have a broad spectrum of tenancies: the Academy of Sciences, a law firm, a publishing company and some financial firms.”
Two other Ground Zero leases tied for second place are at the Fumihiko Maki-designed Tower 4, which is to be built by 2012.
Last month, after a tentative agreement was first announced in April, the Port Authority signed to lease 600,000 square feet in Tower 4, paying Silverstein Properties $59 a square foot in rent. Meanwhile, the city agreed to rent the same amount of space on lower floors, for which it will pay $56.50 a square foot.
There have been other recent big leases Downtown unrelated to Ground Zero.
In August, Aon Corporation subleased 221,000 square feet at 199 Water Street from Wachovia. At 1 World Financial Center, insurance firm Willis Group leased 204,900 square feet.
“For a period after September 11, there was uncertainty surrounding Downtown as to what was going to happen,” says Michael Shenot, managing director with Jones Lang LaSalle. “But decisions have been made, and now there is a sense of knowledge and expectation of what Lower Manhattan will be in the coming years.”
Single-digit vacancy
The big leases have helped lower vacancy rates and boost rents Downtown. For the first time since the end of 2001, more than 90 percent of Downtown’s office space is leased, according to Cushman & Wakefield. The vacancy rate below Canal Street has fallen to 9.5 percent, the first time since 2001 that the vacancy rate in the market has fallen below 10 percent, according to the most recent Cushman & Wakefield research cited last month by the New York Post.
Still, Downtown lags well behind Midtown’s 6.9 percent vacancy rate, according to Cushman & Wakefield.
Before the terrorist attacks, office vacancy rates had reached as low as 6.4 percent Downtown, climbing to 13.7 percent in late 2004 at the worst point during the economic downturn following September 11. “There was an outflow of tenants out of Downtown after September 11. If they had the ability to move, they moved out of Downtown to New Jersey, Midtown, Queens and Brooklyn,” Shenot says.
Asking rents dropped 25 percent between June 2002 and December 2003, as buildings became available that needed to be repaired for tenants. Downtown dropped to the rear of the Manhattan office market.
But when 7 World Trade entered the market in February 2006, average rent rates began to increase significantly, jumping an average $4.55 per square foot in one month, according to Jones Lang LaSalle. In July 2006, rental rates reached $38.57 a square foot, the highest since May 2002. Since then, rental rates have continued to grow — reaching $43.21 in September.
Still, according to Silverstein, rents are 40 percent cheaper than in Midtown and Midtown South.
“Firms can save a huge amount of money; tenants are beginning to grasp that,” Silverstein says.
Welcoming small tenants
In August, approximately 1.04 million square feet of office space was leased Downtown — the largest single amount since January 2002, says Sheldon Cohen, senior managing director of CB Richard Ellis’ Downtown Manhattan office.
It’s not all mammoth leases, of course. Of the 1.4 million square feet leased, 70 percent was secured to companies taking less than 200,000 square feet.
“There are only so many companies of size to need 200,000 square feet or more,” says Shenot. “There are a substantial number of firms with approximately 150 employees.”
The transformation of Downtown into a 24/7 community is attracting residents, brokers say. More than 12 million square feet of lower-class office space has been converted to high-rise, high-end condos and rentals, making the neighborhood more attractive as a live-work center.
“There’s been $34 billion of investment in a square-mile radius and activity is improving at a record rate — validation that firms are reconsidering the Downtown market,” says Cohen.