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Downtown Office Stability Hinges on Incentive Window

NEW YORK CITY-What effect will the World Trade Center redevelopment have on the downtown office market? Industry experts tell GlobeSt.com that developer Larry Silverstein will be in a strong position to undercut the Downtown market, unless federal subsidies reduce the discrepancy between rents he can charge and what others must ask.

By Michael Gilliard | Updated on June 27, 2002

NEW YORK CITY-Downtown office rents could hit freefall when Larry Silverstein ultimately puts his World Trade Center office space back online, using funds from his insurers to cover construction costs. Industry experts tell GlobeSt.com that the developer stands to undercut the market unless his competitors’ rents remain buttressed by federal incentives. Otherwise, the new space could upset the stability of an environment it was intended to unify.

“My concern is that [Silverstein's] insurance proceeds could provide a price advantage over two different types of product,” says a source who works the Downtown market. “Those products are new buildings that are proposed and, depending the degree price advantage, existing class A buildings.”

Woody Heller, executive managing director, Capital Advisors Group at Insignia/ESG, agrees. “These buildings could be constructed at a cost structure that would give them an advantage over existing buildings,” Heller tells GlobeSt.com. “The new properties would have a low break-even point, which would suggest that in a down market, or maybe not even in a down market, they could lease for lower rents than class A buildings traditionally demand, which could put downward pressure on the market overall.”

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