Jones Lang LaSalle
Little by Little, an Overnight Success
By LISA CHAMBERLAIN
As in a wilderness area damaged by fire, the recovery in Lower Manhattan since Sept. 11, 2001, started small and grew imperceptibly until, seemingly overnight, it is starting to burst into bloom.
In part, the recovery seems linked to the diversification of Lower Manhattan commercial tenants. The market has been dominated by large financial-related firms, but in the last year or more there has been an influx of smaller nonprofit organizations, design and creative industries, media companies and law firms. Some have been drawn in part by rents that are lower than those in Midtown.
With that groundswell under way, there was a jump in the first quarter of 2006 in the leasing of larger spaces, and in some Class A buildings surrounding the World Trade Center site, rents have increased by 15 percent.
All of this has taken place despite the uncertainty at ground zero and the struggle to lease the newly opened 7 World Trade Center, the first new building to go up at the 16-acre site that was devastated nearly five years ago.
Just north of ground zero in TriBeCa is 32 Avenue of the Americas, between Walker and Lispenard Streets. It is a historically significant Art Deco building that was built in 1932 by the American Telephone and Telegraph Company, and its revival might serve as a microcosm of Lower Manhattan's comeback story.
Shortly after Sept. 11 and through the economic downturn that followed, 32 Avenue of the Americas was nearly 25 percent vacant. A major tenant, the telecommunications company Global Crossing, declared bankruptcy in 2002, and a handful of other smaller tenants went out of business or left downtown.
Starting about a year ago, however, leasing activity at the building increased sharply, and the site is now almost totally leased. New tenants, many coming from Midtown, include the Rai Corporation, an Italian broadcasting company; Gazes L.L.C., a small bankruptcy law firm; and Cambridge University Press, which will move in later this year.
Light Reading, another new tenant, is an example of a different driving force in Lower Manhattan's vibrancy. The company, an online publisher, was already downtown but had outgrown its old space.
"I've been saying for a year now that the fundamentals in Lower Manhattan are strong," said William C. Rudin, president of the Rudin Management Company, which purchased 32 Avenue of the Americas in late 1999. "What goes on at the World Trade Center is important, but life goes on around it."
The diversification of Lower Manhattan has played a critical role in its resurgence. Financial industries once represented 75 percent of commercial tenants downtown. That has dropped below 50 percent, according to Jones Lang LaSalle, a global real estate investment and management company.
"The conversion of older office buildings to apartments and condos and the increasing diversity of tenants have driven vacancies down," said John Wheeler, managing director of Jones Lang LaSalle. "It's a very healthy marketplace."
The Alliance for Downtown New York reports that the total number of businesses in Lower Manhattan increased by nearly 6 percent in 2005 from 2003, while more than two-thirds of signed leases at the end of 2005 were for 20,000 square feet or less.
In 2005 and the first quarter of this year, relocations from Midtown accounted for 459,445 square feet of space, while total moves into the area totaled 875,952 square feet.
Rai, which had been in Midtown for 37 years, moved to 32 Avenue of the Americas to take advantage of lower rents, sweeping views and the fact that the area is becoming a round-the-clock neighborhood.
"We are a news broadcasting company, so people are working nights and weekends," said Guido Corso, president of Rai. "Midtown at night is a ghost town. This has become a 24-hour environment."
Indeed, Lower Manhattan is the fastest-growing residential neighborhood in New York City, and many of the people moving in also make decisions about company locations.
Ian J. Gazes and his legal and life partner, Serge D. Krawiecki, moved their law office from Midtown at the same time they were also purchasing a condo three blocks away, where they live with their daughter, Julia Krawiecki Gazes.
"Out this window, I have a great view of where we don't want to be," Mr. Gazes said as he pointed north to Midtown. "And out of this window, I have a great view of the Hudson River, looking toward our condo. We love being able to walk to work and have our daughter close by."
The first tenant to sign a lease at the 7 World Trade Center was the New York Academy of Sciences, a nonprofit organization, whose president, Ellis Rubinstein, moved from the Upper East Side to a condo downtown.
Other new downtown nonprofit tenants include the International Center for Transitional Justice, which took 19,000 square feet, and the American Red Cross, which leased 34,000 square feet, both at 5 Hanover Square. At 52 Broadway, Vocational Foundation Inc. leased 17,000 square feet, and the Y.W.C.A. took 22,000 square feet.
Publishing and media companies with new leases include Bowne & Company at 55 Water Street, William H. Sadlier Inc. at 14 Wall Street and Lifestyle Media Inc. at 110 William Street.
Education, legal and government agencies are leasing considerable space in buildings like 29 Broadway, which had a 35 percent vacancy rate in 2004 but is now 100 percent occupied. Similarly, 32, 39 and 45 Broadway all had vacancy rates above 20 percent in 2004 and are now 98 percent leased.
"When you get a lot of smaller businesses, you get more diversification and more job growth," said Eric J. Deutsch, president of the Downtown Alliance. "People are voting with their feet, coming from Midtown, and we think that's part of what's pushing up the rents downtown."
Indeed, rather than a trickledown effect, demand for smaller spaces is helping to push prices up at the top. Brookfield Properties, which manages 10 million square feet of space around the World Trade Center site, recently increased rent at the World Financial Center by $4 a square foot, about 15 percent.
"At the beginning of the year, from a leasing standpoint we didn't know what was going to happen," said Richard B. Clark, chief executive of Brookfield Properties. "We had 900,000 square feet in play. We were a little worried, but we've since leased 650,000 square feet, which is considerable activity."
While downtown real estate brokers and property owners are singing the praises of diversification, the financial sector has not become totally dormant. Morgan Stanley and American Express both renewed and expanded their downtown space in 2005.
The finance, insurance and real estate industries are still the largest categories of tenants downtown. Overall absorption in Lower Manhattan was more than a million square feet in 2005, the first year since 2000 that a surplus of space has shrunk, as new leases exceeded space newly put on the market. In the first quarter of 2006, 950,000 square feet of space has already been leased. Not included in that figure is the recent announcement by the Aon Corporation, an insurance brokerage, of a deal to sublease 200,000 square feet from Wachovia at 199 Water Street. For the first time since Sept. 11, all of Aon's employees will be downtown.
Robert Yaro, president of the Regional Plan Association of New York and New Jersey, an independent metropolitan research and advocacy agency, attributes the overall health of Lower Manhattan to three things: the price advantage compared with Midtown, the influx of smaller businesses and the resurgence of residential life in Lower Manhattan and Brooklyn, whose residents have an easier commute to downtown than Midtown.
"Lower Manhattan is an astounding story," Mr. Yaro said. "It's a more interesting place now than it's been since Manhattan was founded."
Little by Little, an Overnight Success
By LISA CHAMBERLAIN
As in a wilderness area damaged by fire, the recovery in Lower Manhattan since Sept. 11, 2001, started small and grew imperceptibly until, seemingly overnight, it is starting to burst into bloom.
In part, the recovery seems linked to the diversification of Lower Manhattan commercial tenants. The market has been dominated by large financial-related firms, but in the last year or more there has been an influx of smaller nonprofit organizations, design and creative industries, media companies and law firms. Some have been drawn in part by rents that are lower than those in Midtown.
With that groundswell under way, there was a jump in the first quarter of 2006 in the leasing of larger spaces, and in some Class A buildings surrounding the World Trade Center site, rents have increased by 15 percent.
All of this has taken place despite the uncertainty at ground zero and the struggle to lease the newly opened 7 World Trade Center, the first new building to go up at the 16-acre site that was devastated nearly five years ago.
Just north of ground zero in TriBeCa is 32 Avenue of the Americas, between Walker and Lispenard Streets. It is a historically significant Art Deco building that was built in 1932 by the American Telephone and Telegraph Company, and its revival might serve as a microcosm of Lower Manhattan's comeback story.
Shortly after Sept. 11 and through the economic downturn that followed, 32 Avenue of the Americas was nearly 25 percent vacant. A major tenant, the telecommunications company Global Crossing, declared bankruptcy in 2002, and a handful of other smaller tenants went out of business or left downtown.
Starting about a year ago, however, leasing activity at the building increased sharply, and the site is now almost totally leased. New tenants, many coming from Midtown, include the Rai Corporation, an Italian broadcasting company; Gazes L.L.C., a small bankruptcy law firm; and Cambridge University Press, which will move in later this year.
Light Reading, another new tenant, is an example of a different driving force in Lower Manhattan's vibrancy. The company, an online publisher, was already downtown but had outgrown its old space.
"I've been saying for a year now that the fundamentals in Lower Manhattan are strong," said William C. Rudin, president of the Rudin Management Company, which purchased 32 Avenue of the Americas in late 1999. "What goes on at the World Trade Center is important, but life goes on around it."
The diversification of Lower Manhattan has played a critical role in its resurgence. Financial industries once represented 75 percent of commercial tenants downtown. That has dropped below 50 percent, according to Jones Lang LaSalle, a global real estate investment and management company.
"The conversion of older office buildings to apartments and condos and the increasing diversity of tenants have driven vacancies down," said John Wheeler, managing director of Jones Lang LaSalle. "It's a very healthy marketplace."
The Alliance for Downtown New York reports that the total number of businesses in Lower Manhattan increased by nearly 6 percent in 2005 from 2003, while more than two-thirds of signed leases at the end of 2005 were for 20,000 square feet or less.
In 2005 and the first quarter of this year, relocations from Midtown accounted for 459,445 square feet of space, while total moves into the area totaled 875,952 square feet.
Rai, which had been in Midtown for 37 years, moved to 32 Avenue of the Americas to take advantage of lower rents, sweeping views and the fact that the area is becoming a round-the-clock neighborhood.
"We are a news broadcasting company, so people are working nights and weekends," said Guido Corso, president of Rai. "Midtown at night is a ghost town. This has become a 24-hour environment."
Indeed, Lower Manhattan is the fastest-growing residential neighborhood in New York City, and many of the people moving in also make decisions about company locations.
Ian J. Gazes and his legal and life partner, Serge D. Krawiecki, moved their law office from Midtown at the same time they were also purchasing a condo three blocks away, where they live with their daughter, Julia Krawiecki Gazes.
"Out this window, I have a great view of where we don't want to be," Mr. Gazes said as he pointed north to Midtown. "And out of this window, I have a great view of the Hudson River, looking toward our condo. We love being able to walk to work and have our daughter close by."
The first tenant to sign a lease at the 7 World Trade Center was the New York Academy of Sciences, a nonprofit organization, whose president, Ellis Rubinstein, moved from the Upper East Side to a condo downtown.
Other new downtown nonprofit tenants include the International Center for Transitional Justice, which took 19,000 square feet, and the American Red Cross, which leased 34,000 square feet, both at 5 Hanover Square. At 52 Broadway, Vocational Foundation Inc. leased 17,000 square feet, and the Y.W.C.A. took 22,000 square feet.
Publishing and media companies with new leases include Bowne & Company at 55 Water Street, William H. Sadlier Inc. at 14 Wall Street and Lifestyle Media Inc. at 110 William Street.
Education, legal and government agencies are leasing considerable space in buildings like 29 Broadway, which had a 35 percent vacancy rate in 2004 but is now 100 percent occupied. Similarly, 32, 39 and 45 Broadway all had vacancy rates above 20 percent in 2004 and are now 98 percent leased.
"When you get a lot of smaller businesses, you get more diversification and more job growth," said Eric J. Deutsch, president of the Downtown Alliance. "People are voting with their feet, coming from Midtown, and we think that's part of what's pushing up the rents downtown."
Indeed, rather than a trickledown effect, demand for smaller spaces is helping to push prices up at the top. Brookfield Properties, which manages 10 million square feet of space around the World Trade Center site, recently increased rent at the World Financial Center by $4 a square foot, about 15 percent.
"At the beginning of the year, from a leasing standpoint we didn't know what was going to happen," said Richard B. Clark, chief executive of Brookfield Properties. "We had 900,000 square feet in play. We were a little worried, but we've since leased 650,000 square feet, which is considerable activity."
While downtown real estate brokers and property owners are singing the praises of diversification, the financial sector has not become totally dormant. Morgan Stanley and American Express both renewed and expanded their downtown space in 2005.
The finance, insurance and real estate industries are still the largest categories of tenants downtown. Overall absorption in Lower Manhattan was more than a million square feet in 2005, the first year since 2000 that a surplus of space has shrunk, as new leases exceeded space newly put on the market. In the first quarter of 2006, 950,000 square feet of space has already been leased. Not included in that figure is the recent announcement by the Aon Corporation, an insurance brokerage, of a deal to sublease 200,000 square feet from Wachovia at 199 Water Street. For the first time since Sept. 11, all of Aon's employees will be downtown.
Robert Yaro, president of the Regional Plan Association of New York and New Jersey, an independent metropolitan research and advocacy agency, attributes the overall health of Lower Manhattan to three things: the price advantage compared with Midtown, the influx of smaller businesses and the resurgence of residential life in Lower Manhattan and Brooklyn, whose residents have an easier commute to downtown than Midtown.
"Lower Manhattan is an astounding story," Mr. Yaro said. "It's a more interesting place now than it's been since Manhattan was founded."
posted by Jones Lang LaSalle NJ News Blog at 11:10 AM
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