Bruce Brodoff Communications
Bruce Brodoff Communications
Downtown Vacancies Near Pre-Sept. 11 Level
By Sharon L. Crenson

Downtown Manhattan's office vacancy rate is poised to fall below 10% for the first time since the September 11 terrorist attacks, according to a forecast by Jones Lang LaSalle, the largest American commercial real estate broker.

Three lease agreements now being negotiated for a total of 1.1 million square feet would bring the rate to 10.3%, Jones Lang said. The firm predicted the rate will fall below 10 % by year's end. The rate was about 13% in the first quarter of last year, up from 7% just before the World Trade Center towers were destroyed five years ago.

"The expectations today are dramatically higher for the level of recovery that Lower Manhattan will experience," John Wheeler, Jones Lang managing director for New York, said in an interview.

Downtown Manhattan's resurgence was aided by the commitment of Goldman Sachs Group Inc., the most-profitable Wall Street firm, and Morgan Stanley, the biggest, to the area, Jones Lang said. Goldman is building a 43-story headquarters within blocks of the former twin towers. Morgan Stanley, which has its headquarters in Times Square, signed a lease a year ago for 648,000 square feet of additional space at 1 New York Plaza, two blocks east of Battery Park.

Colliers ABR, another real estate consulting firm, released a report this month that estimated the area's Class A vacancies - the most expensive - fell to 10.2% in July from 10.9% in June. "In my mind it's a very significant number," said Nicole LaRusso, vice president of planning and economic development for the Alliance for Downtown New York. "I think that's a really important milestone in Lower Manhattan's recovery." The alliance contracts with the city to attract businesses, keep the area clean and improve safety.

Midtown Manhattan's falling vacancy rate and rising prices also contributed to Lower Manhattan's growth. Midtown's office vacancy rate dropped to a five-year low of 6.9% in the second quarter, and rents rose to $42.59 per square foot, the highest in America, according to New York-based real estate services provider Cushman & Wakefield. Downtown, rents rose to $36.60 last quarter, Jones LaSalle said. Cushman put the latest number at $35.18.

From pre-September 11 to the first quarter of 2005, prices for Lower Manhattan offices fell 27% to $29.57 per square foot.

Lower Manhattan ranks fourth among U.S. central business districts, following Midtown Manhattan, Chicago and Washington. Moody's Investors Service, the New York City Department of Transportation, and Royal Bank of Canada are all negotiating leases in Lower Manhattan, Mr. Wheeler said.

Moody's may lease more than 600,000 square feet at developer Larry Silverstein's 7 World Trade Center, rebuilt on the site of one of the buildings that fell on September 11. The Transportation Department is in talks for 440,000 square feet at 55 Water Street and the Royal Bank of Canada is negotiating a lease at 3 World Financial Center, where it plans to occupy 200,000 to 300,000 square feet.

Willis Group Holdings Ltd., the world's third-largest insurance brokerage, signed a lease August 21 for 205,000 square feet at 1 World Financial Center, across from the New York Mercantile Exchange.

Downtown New York had 72.5 million square feet of Class A office space with a 6% vacancy rate prior to September 11. Landlords commanded an average rent of $43.90 per square foot then. One-fifth of that space was destroyed in the terror attacks, most in the trade center complex itself. The area had 59.3 million square feet of Class A capacity in the second quarter of this year.

"Lower Manhattan is pretty much moving ahead on all fronts," said Bruce Brodoff, spokesman for the Downtown Alliance.

A report this month by the Downtown Alliance said 60% of 1,700 area employees the organization surveyed said they feel Lower Manhattan is a better place to work than it was three years ago. About 90% said they are optimistic about downtown's future.

More restaurants, retailers, attorneys, architects and upscale businesses such as BMW dealers are moving in as well as large companies. About 37,000 people live in the district, a number expected to rise to 50,000 by the end of the decade, Mr. Brodoff said.

The financial services and insurance industries were by far the largest downtown employers prior to September 11, with an estimated 145,000 workers. Since then, government agencies have superseded any private-sector employment, with about 104,000 people the second quarter of this year compared with a little less than 94,000 in financial services and insurance, according to the Jones Lang LaSalle report.

"Several other major tenants continue to circle the remaining large blocks downtown," Colliers said.

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