NEW YORK--(BUSINESS WIRE)--March 22, 2002--TenantWise.com, an online real estate market research and leasing firm, continues to provide comprehensive information regarding the effects of the September 11th attack upon Manhattan's real estate markets and economy.
This release is a condensed version of the fifth report in the series of reports; the full version and all other reports are available at www.tenantwise.com.
Situation Overview
The destroyed properties of the World Trade Center ("WTC") and the damaged surrounding properties represent a total of 34.5 MM sq. ft. of office space. Six buildings were destroyed and 23 surrounding properties were damaged. Overall, the destroyed and damaged property was a loss affecting 60% of Downtown Manhattan's Class A office space. For further details, see www.tenantwise.com/wtc_damage.asp.
TenantWise.com has maintained contact with each of the larger tenants and tracked these companies' transition since 9/11. The survey results of their relocation plans form the basis for the research included in this continuing series of reports. The results, from a geographical viewpoint, are as follows:
Remaining Downtown:A total of 19.1 MM sq. ft., or 55% of the total affected 34.5 MM sq. ft., will remain Downtown. Total jobs remaining: 76,294. Leaving Downtown: A total of 15 MM sq. ft., or 44% of the total affected 34.5 MM sq. ft. will leave Downtown. Total jobs leaving: 59,830. Undecided: A total of 0.4 MM sq. ft., or 1% of the total affected 34.5 MM sq. ft. remains undecided. Total jobs undecided: 1,795 Conclusions
More companies decentralize and/or bifurcate operations and concentrate on improving contingency plans and business continuity. From TenantWise.com's analysis of the largest tenants, 29 tenants representing a total of 16.4 MM sq. ft. from the affected properties have strategically planned to decentralize operations. This continuing trend is pushing jobs out of Lower Manhattan.
Qualitative concerns held greater weight in decision making than cost. In the post 9/11 real estate markets, pricing for relocation alternatives varied widely due to location and asset quality. For assets of similar quality, prices were dramatically higher in Midtown and New Jersey than in Downtown. Despite the price difference, many companies chose to pay more and relocate facilities away from Downtown despite the availability of comparable lower-priced alternatives. Decisions were heavily based on concerns regarding security, transportation, environmental safety, redundancy of operations and, as mentioned above, contingency planning.
Current market status:
Availability has risen even though market size has been reduced. As of 9/10, the Downtown market had an availability rate of approximately 8.7%. The attack of September 11th reduced the size of the Downtown market by 13.4MM sq. ft., yet the availability rate increased to 15.3% as of February 2002.
More space continues to be added to the market. In the near term, more space is likely to be added to the Downtown market. Space in the damaged buildings that is in the process of being put on the market is 1.5 MM sq. ft. This additional sublease space increases the current availability rate from 15% to 18%. Given the pace of leasing and continued withdrawal from Downtown by tenants not directly affected by the attacks, TenantWise predicts that availability rates will break the 20% mark by summer 2002.
Downtown historically weak. Despite understandable concern that the availability rate might exceed 20%, the fact remains that Downtown has historically been a weak office market since at least 1985. Over the last 16 years, the average availability rate was 16.2%. The average asking rate over the same period was $30.81 per square foot. Further, the Downtown market has experienced availability rates of 15% or higher in eight of the last 16 years and over 20% in six of the last 16 years. Therefore, today's 15% availability rate is not atypical of Downtown's historical performance.
Future concerns:
Leases expiring in properties not directly affected by 9/11 are the next concern. The total employee population below Chambers Street as of 9/10 was 388,000. The 59,830 jobs that left Lower Manhattan from the affected properties alone reduces the total to approximately 329,000 jobs. Assuming, on a ten-year lease horizon, half of those leases expire during the next five-year period, 164,500 jobs could be at risk of leaving the Downtown area in the near term. Companies that have a large employee population from the Upper West Side and New Jersey may constitute a large part of those which decide to leave Downtown if PATH and subway transportation issues are not addressed.
Impact of Terrorism Insurance. The impact of 9/11 on insurance providers and purchasers is significant and far-reaching. Insurance policies that are being renewed reflect minimum 20-50% increases, if the policies are renewed at all. Many major insurance companies have either terminated offering insurance coverage in Lower Manhattan or have become highly selective in renewing or issuing new policies in the area. For large building policies, some owners are resorting to two or three levels of mezzanine insurance to reach only to 50% coverage of replacement value. The full effect of the change in insurance is now being felt throughout the real estate industry and is likely to further reduce net operating income of commercial buildings.
This release is a condensed version of the fifth report in the series of reports; the full version and all other reports are available at www.tenantwise.com.
Situation Overview
The destroyed properties of the World Trade Center ("WTC") and the damaged surrounding properties represent a total of 34.5 MM sq. ft. of office space. Six buildings were destroyed and 23 surrounding properties were damaged. Overall, the destroyed and damaged property was a loss affecting 60% of Downtown Manhattan's Class A office space. For further details, see www.tenantwise.com/wtc_damage.asp.
TenantWise.com has maintained contact with each of the larger tenants and tracked these companies' transition since 9/11. The survey results of their relocation plans form the basis for the research included in this continuing series of reports. The results, from a geographical viewpoint, are as follows:
Remaining Downtown:A total of 19.1 MM sq. ft., or 55% of the total affected 34.5 MM sq. ft., will remain Downtown. Total jobs remaining: 76,294. Leaving Downtown: A total of 15 MM sq. ft., or 44% of the total affected 34.5 MM sq. ft. will leave Downtown. Total jobs leaving: 59,830. Undecided: A total of 0.4 MM sq. ft., or 1% of the total affected 34.5 MM sq. ft. remains undecided. Total jobs undecided: 1,795 Conclusions
More companies decentralize and/or bifurcate operations and concentrate on improving contingency plans and business continuity. From TenantWise.com's analysis of the largest tenants, 29 tenants representing a total of 16.4 MM sq. ft. from the affected properties have strategically planned to decentralize operations. This continuing trend is pushing jobs out of Lower Manhattan.
Qualitative concerns held greater weight in decision making than cost. In the post 9/11 real estate markets, pricing for relocation alternatives varied widely due to location and asset quality. For assets of similar quality, prices were dramatically higher in Midtown and New Jersey than in Downtown. Despite the price difference, many companies chose to pay more and relocate facilities away from Downtown despite the availability of comparable lower-priced alternatives. Decisions were heavily based on concerns regarding security, transportation, environmental safety, redundancy of operations and, as mentioned above, contingency planning.
Current market status:
Availability has risen even though market size has been reduced. As of 9/10, the Downtown market had an availability rate of approximately 8.7%. The attack of September 11th reduced the size of the Downtown market by 13.4MM sq. ft., yet the availability rate increased to 15.3% as of February 2002.
More space continues to be added to the market. In the near term, more space is likely to be added to the Downtown market. Space in the damaged buildings that is in the process of being put on the market is 1.5 MM sq. ft. This additional sublease space increases the current availability rate from 15% to 18%. Given the pace of leasing and continued withdrawal from Downtown by tenants not directly affected by the attacks, TenantWise predicts that availability rates will break the 20% mark by summer 2002.
Downtown historically weak. Despite understandable concern that the availability rate might exceed 20%, the fact remains that Downtown has historically been a weak office market since at least 1985. Over the last 16 years, the average availability rate was 16.2%. The average asking rate over the same period was $30.81 per square foot. Further, the Downtown market has experienced availability rates of 15% or higher in eight of the last 16 years and over 20% in six of the last 16 years. Therefore, today's 15% availability rate is not atypical of Downtown's historical performance.
Future concerns:
Leases expiring in properties not directly affected by 9/11 are the next concern. The total employee population below Chambers Street as of 9/10 was 388,000. The 59,830 jobs that left Lower Manhattan from the affected properties alone reduces the total to approximately 329,000 jobs. Assuming, on a ten-year lease horizon, half of those leases expire during the next five-year period, 164,500 jobs could be at risk of leaving the Downtown area in the near term. Companies that have a large employee population from the Upper West Side and New Jersey may constitute a large part of those which decide to leave Downtown if PATH and subway transportation issues are not addressed.
Impact of Terrorism Insurance. The impact of 9/11 on insurance providers and purchasers is significant and far-reaching. Insurance policies that are being renewed reflect minimum 20-50% increases, if the policies are renewed at all. Many major insurance companies have either terminated offering insurance coverage in Lower Manhattan or have become highly selective in renewing or issuing new policies in the area. For large building policies, some owners are resorting to two or three levels of mezzanine insurance to reach only to 50% coverage of replacement value. The full effect of the change in insurance is now being felt throughout the real estate industry and is likely to further reduce net operating income of commercial buildings.
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