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Affordable rents, incentives boost leasing downtown.

The Alliance for Downtown New York announced that affordable rents and new government incentives helped drive new leasing activity in the Lower Manhattan commercial real estate market during the fourth quarter of 2005.

In addition, Midtown firms continued to move Downtown and the trend of small businesses moving to Lower Manhattan continued to accelerate.

The total number of businesses located Downtown in 2005 was 7,852--the most since before 9/ 11, according to data from the state Department of Labor.

There were more than 850,000 square feet of new leases signed for Lower Manhattan during the fourth quarter, according to Cushman & Wakefield. (This figure does not include Goldman Sachs' new 1.9 million-square-foot headquarters in Battery Park City, which will be owner-occupied and not a space lease.) Downtown's vacancy rate decreased to 10.6% in the fourth quarter of 2005 from 13.7% in the fourth quarter of 2004. For 2005 as a whole, net commercial leasing in Lower Manhattan increased by 1.1 million square feet.

"This activity shows the vitality of Lower Manhattan as a premier central business district," said Eric Deutsch, president of Downtown Alliance. "New incentives, rent differentials and pending transportation improvements combined with often incredible views of New York Harbor are creating a new buzz for commercial leasing downtown."

While leases in the FIRE sector (financial, insurance and real estate) continued to drive Downtown commercial leasing, there were also a significant number of leases signed by museums and other nonprofit groups, law firms, business service firms and telecom companies.

Among the entities in the FIRE section that signed Downtown leases in the fourth quarter were AIG Inc., Tower Insurance Company of New York and Vyapar Capital Market Partners.

Among the larger leases signed in the fourth quarter included the National Sports Museum (91,900 sf), Hawkins Delafield & Wood LLP (66,369 sf), City College of New York (43,785 sf), New York Academy of Sciences (40,000 sf) and Stamack Inc. (30,769 sf). The upsurge in leasing activity has continued in early 2006, most prominently with the agreement by Beijing Vantone Real Estate Co. Ltd. to lease at least 200,000 square feet at 7 World Trade Center.

Lower Manhattan continues to attract tenants from Midtown. Among the tenants that agreed to move from Midtown in the fourth quarter were TitleVest Agency, which relocated to 44 Wall St.; Crossborder Solutions (1 New York Plaza); Eagle Advisors (3 World Financial Center); and AM Investments (1 Liberty Plaza).

"We were initially inclined to move to larger office space in the Midtown area to house our growing staff," said Bill Baron, Founder and President of TitleVest, a title insurance company that moved from a 4,500-square-foot space in Midtown to its new 16,100- square-foot headquarters at 44 Wall Street. "However, when we became aware of the great values and incentives being offered in the Downtown area, the advantages to moving were compelling. We have just moved into our new state-of-the-art facilities at 44 Wall Street and couldn't be happier with our decision."

One notable trend in the Downtown market is the increased interest among small- and mid-sized tenants--especially nonprofit organizations attracted by affordable rents. More than two-thirds of fourth quarter leases were signed by tenants for less than 20,000 square feet, according to an analysis of leasing data from the CoStar Group.

This continues a trend of the last several years. The number of firms located in Lower Manhattan increased by nearly 6% in 2005 compared to 2003, according to second quarter figures released by the state Department of Labor. Many of these firms are small enterprises. While the number of firms increased, the number of employees per business dropped to 26.9 per firm in 2005 from 30.5 in 2003--an indication that small businesses are being attracted to Lower Manhattan.

This trend is due primarily to the large rent differential between Downtown and Midtown, new government incentives, Lower Manhattan transportation improvements and the general sense that economic activity is picking up Downtown.

Average downtown rents are now $30.89 per square foot, compared to $47.41 in Midtown, according to Cushman & Wakefield. And CB Richard Ellis reports that the current difference between midtown and Downtown rents is far above historical spreads--46% for existing buildings, as compared to 30% over the last decade.

Incentives recently passed by the State Legislature and signed by the Governor include expansion

of exemptions from the city's commercial rent tax, exemptions from sales and use taxes, and expansion of the Lower Manhattan Relocation Employment Assistance Program (REAP), as well as incentives for 7 World Trade Center and the World Trade Center site.

"Downtown is a real bargain," said Ric Clark, president & CEO, Brookfield Properties Corp. "Plus, tenants realize that with the transportation improvements coming on line--the new Calatrava PATH station, the Fulton Street Station remodeling and the JFK rail link--it will be much easier for people to get to Lower Manhattan."

Because of increased interest in Lower Manhattan, the portion of 3 World Financial Center owned by Brookfield was 82% leased by the end of 2005, compared to 35% leased at the end of 2004.

"The combination of the recently enacted economic incentives for downtown, sponsored by Governor Pataki, Mayor Bloomberg and Speaker Silver, in addition to the Goldman Sachs commitment to build their $2 billion world headquarters across from the World Trade Center site, as well as the continuing efforts by the Mayor and his administration to improve the overall quality of life in the City, is having a tangible positive impact on Downtown's leasing market," said William C. Rudin, President of Rudin Management Inc.
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Publication:Real Estate Weekly
Date:Mar 15, 2006
Words:938
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