Japanese bank Nomura’s decision to move out of the World Financial Center downtown and take 900,000 square feet at Worldwide Plaza in midtown is undoubtedly a blow for the tip of the island’s commercial future. The move will leave a huge vacancy at the Brookfield Properties-owned complex just as 3 million square feet of leases there are ending in 2013. (We saw the move coming in mid-May.)
But it’s more than just the vacancy.
When Condé Nast signed its much ballyhooed deal last month to move from 4 Times Square in midtown to downtown’s–the continent’s–biggest new tower, 1 World Trade Center, this newspaper begged the still-unanswered question: Condé got a suite deal to move downtown, will anyone else? Most prominently, the Port Authority, the tower’s landlord, agreed to pay the last few years’ rent at the magazine publisher’s current space in Durst’s 4 Times Square.
With such a prominent tenant as Nomura opting for what we can only imagine are the much higher market-rate rents of midtown over the cheaper ones of downtown, we beg another question: What can downtown landlords offer that midtown landlords can’t–beyond the cheaper rents that come naturally to the area?
The answer to this question (and part of the answer to the first, we suspect) is incentives, including build-outs, artificially lower rents and government largess. So the real impact of the Nomura move will likely be on rents, on what downtown landlords can really get for their space after they’ve played ball at a pace that midtown landlords can avoid. Nomura’s move affects every prime property in lower Manhattan, including the new trade center.
This is not to say that downtown Class A space is any worse or less empirically desirable than that in midtown. It’s just the way the pen rolls in a commercial real estate market that still esteems midtown, even with its higher rents.
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