Wall Street Rebound Fuels Downtown Leasing Activity

NEW YORK CITY-Downtown brokers are seeing an uptick in leasing activity and point to several factors for the increased interest, including the economic upswing, lower rents than Midtown and the rebuilding of the World Trade Center site.”Interest has picked up but it’s more a result of the pick-up on Wall Street than anything else,” explains Larry Tannenbaum, executive director in Cushman & Wakefield’s Downtown office. He says that, while he is often asked about the impact of the new 7 World Trade Center and the Freedom Tower, “7 World Trade, at roughly 1.8 million sf, is less than 2% of the market, even post 9/11.”And the office market is rebounding from a better point than a decade ago, he adds: “In the ’90s when the market was depressed there were two things going on: the crash of Wall Street in ’87, and, from ’82 to ’87 we had massive building coinciding with a business downturn. This time, if you look at statistics, instead of starting at a mid-20s vacancy rate we peaked out at 14% to 15%, even Downtown.”And now we are talking about the economy picking up, which is a leading indicator of employment and space needs,” he adds.As for the Freedom Tower and 7 World Trade drawing firms Downtown, CB Richard Ellis senior vice president Adam Foster explains that, even though the cornerstone was laid for the Freedom Tower last summer, crews are still completing infrastructure work on the site. Across the way, 7 World Trade is seeing a “fair amount” of activity right now, adds Foster who is part of the marketing team for the property. The team has not signed any tenants for the property yet, but he notes that CBRE is looking for the larger tenants first and “those deals take a while to make.”Clearly people are excited about the prospect of coming back Downtown and being part of what’s going to be one of the biggest development projects in the century,” Foster adds. Include in that roster such returning firms as Morgan Stanley, which decided to take 447,000 sf at One New York Plaza, and law firm Morgan & Finnegan LLP, which returned to Lower Manhattan early last year in a 100,000-sf lease deal at 3 World Financial Center.As in years past, that trend is being fueled in part by the lower rental rates Downtown compared to other areas, especially Midtown. “Lease rates are averaging around $30,” says Foster. “Newer buildings are commanding more than that. You have the biggest spread in history right now between Midtown and Downtown in terms of effective rental rates–almost a 40% differential. That will drive a lot of additional leasing Downtown through 2005 and beyond.”Tannenbaum adds that Downtown right now is at least a year and a half ahead of Midtown in its upward cycle. “What typically happens is the price in absolute dollars between Midtown and Downtown accentuates for a period of time,” he explains. Rents for class A office space, such as One Liberty, World Financial Center and Financial Square, start in the mid-$30s with increases every five years of $4 to $5, he adds.