NEW YORK CITY—As One World Trade Center surpasses the Empire State Building in height, the project's significance to Lower Manhattan's office sector is indisputable. But it's also helping Downtown become a retail success story.
"The number of commuters and tourists coming through here is staggering," Chase Welles, retail chair at the Real Estate Board of New York, tells Real Estate Forum. "The World Trade Center is the most visited place in New York after the Met in its first year. About 200,000 people a day go through the WTC site, and 300,000 people go through the Fulton Street corridor. Those numbers are just not arguable."
As a result of the growth in tourism, employment and 60,000 new residents, spending in Lower Manhattan is now an estimated at $4.7 billion annually, according to the Alliance for Downtown New York. In turn, 90 new retailers opened in 2011, and at least 13 more are coming soon, the Alliance says.
Retail rents are also going up. According to CBRE, Downtown rates have gone from $131 per square foot in the third quarter of 2011 to $157 per square foot in the fourth, a sign that the neighborhood—from Battery Park to Chambers Street—is rising once again.
In the office sector, as large blocks of space continue to get gobbled up in Midtown and Midtown South, large transactions are helping to boost net-effective office rents Downtown. According to Studley's 2012 Effective Rent Index, total rent posted its first gain in Lower Manhattan since 2007, spiking by 18.1% to $41.34 per square foot, spurred by a 49.9% spike in net rent to $18.42.
However, there's more to the story behind that spike. Erik Schmall, executive managing director at Studley, tells Forum that the increase was "driven solely by the Conde Nast deal that was done Downtown," noting that the luxury magazine publisher's landmark one-million-square-foot-plus lease at One WTC is already having a material impact on the surrounding neighborhood. "I don't know if this would be a positive number if it were not for this deal."
While other brokerage shops have said that Conde's announcement hasn't dragged asking rents up or down, Schmall says the mega transactions impact the net effective index in a much bigger way. "All the larger deals—like Oppenheimer and Conde—were done at rental rates in premium buildings, as opposed to some of the deals we did in other buildings," he explains. Schmall notes that although Lower Manhattan offers a "significant discount from Midtown," much of the older office product is still struggling to lease up.
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