The Fall Season in Downtown
Tom Acitelli Sept. 13, 2011, 1:28 p.m.
“I’m more bullish today than I was in 2007,” said Cushman & Wakefield’s Tara Stacom of 1 World Trade and the outlook for the 1,776-foot tower that will offer 3.1 million square feet of Class A office space. “I did not think one of the first tenants would be a million-plus feet.”
Signing the lease with Condé Nast in May of this year was, for lack of a less hackneyed term, a game-changer for downtown Manhattan, especially as the area emerges not only from the Great Recession but from the malaise that characterized so much of the area since 9/11.
Other media companies have been part of the change, taking the baton, as it were, from the FIRE firms that traditionally power Class A space, in downtown or elsewhere in Manhattan. Spin magazine, the Daily News, American Media (publisher of The National Enquirer among other titles) Mansueto Ventures (owners of Fast Company and Inc. magazines) and Omnicom Group have all signed leases in or relocated to downtown Manhattan (for more on recent relocations to downtown, check out The Commercial Observer’s exhaustive chart, starting on page 14, from the Alliance for Downtown BID and Jones Lang LaSalle).
“We’re seeing interest from tech firms, more creative [firms],” Ms. Stacom said of 1 World Trade Center in particular, echoing the larger leasing trend for downtown. “And, of course, from law firms and government.”
Ms. Stacom believes the Condé Nast move will reverberate in ways yet imagined. “There will be a different mix of retail”—more Marc Jacobs than Brooks Brothers. “Downtown’s recovery has been far quicker than we anticipated. It’s just an extraordinary story,” said Ms. Stacom.
Tallying Tenant Incentives
The tenants have different reasons—an iconic address, the new construction, the architecture, modern amenities—but tenant incentives (T.I.’s) perhaps loom the largest when it comes to the recent shifts in downtown leasing.
While hard numbers for T.I.’s are difficult to nail down, brokers offered estimates. The standard work allowance package being offered at trophy space downtown is $60 per square foot, according to Peter Riguardi, president of the New York region for Jones Lang LaSalle. He believes 10 to 12 months of free rent can also be standard.
“Tenants definitely want a contribution to their build-out,” Ms. Stacom said. She added that if she signs a deal she is currently negotiating at 1 World Trade, the floors below the sky lobby will be 50 percent leased. Those floors are renting for $75 per square foot, and the rest of the tower, which is constructed up to the 77th floor, has yet to be priced but will be more expensive.
Though the pre-2001 vacancy rate was 3.2 (compared with the current 9.2) and neither occupancy rates nor asking rents downtown have rebounded to pre-2001 levels, optimism remains given the spate of media leases. And, as Ms. Stacom points out, the ascendancy of what will be North America’s highest tower is practically as well as symbolically important. “New Yorkers need this—we need the office stock.”
Compared with other world cities, New York suffers from a stunning dearth of Class A space, and much of what downtown had in particular was destroyed on 9/11 (or converted to condos shortly thereafter as companies fled the area). But as factors like the new Fulton Street transit hub, government incentives and continued residential conversions in the financial district merge, downtown has the potential to rival midtown—with that more diverse tenant base, besides.
Tech Plugs In
Mr. Riguardi said he finds the growth in tech the most notable, as that sector shows huge potential. As noted in a recent Jones Lang LaSalle report on downtown, “technology firms currently account for an aggregate three million square feet of demand throughout Manhattan.” And technology’s traditional stomping grounds, midtown south, are crowded to the point of 0 percent vacancy, according to some estimates. Thus, downtown as a prime option.
The open, collaboration-encouraging space that the large floor plates of 1 World Trade and other newer towers, like Silverstein Properties’s 7 World Trade Center, allow is part of the draw for tech and creative firms, but Mr. Riguardi also believes there is simply more need in general for quality space for tech tenants. In New York City, he said, “our product is so dated.”
1 W.T.C.’s Shadow
One World Trade’s automatic cachet was the entire draw for its second-biggest client after Condé Nast—the China Center, a complex consisting of just under 200,000 square feet on floors 64 through 69, which is being built out and rented by Beijing-based real estate firm Vantone.
“The Chinese feel the site represents validation that you are a global firm,” said Mr. Riguardi, who represented Vantone. Xue Ya, president at Vantone, says 1 World Trade was the only address in New York City that is widely recognized in China.
The 20-year lease with two 10-year renewal options was signed in 2009, though the parties had been in discussions since 2004. While work allowances were a concern, the one thing Vantone would not compromise on was accessibility. The firm wanted easy flow from its offices—which includes an events space, a conference center, a private club and a Chinese restaurant—to the ground level.
Ms. Ya suggested that her company’s move was not only strategic, but prescient, particularly given the past decade’s pessimism regarding development at the World Trade Center site. “We believed in the project from day one,” she said of 1 World Trade. “Too many people questioned us.” The firm hopes to create a haven for Chinese business at the landmark address, and Ms. Ya believes the investment in infrastructure is the key driver for the area. “In two more years, everything will change. The government’s investment will create value.”
As 1 World Trade has finally become a physical presence, other buildings downtown have benefited. For instance, SL Green took control of 100 Church about two years ago, and it is now 80 percent leased, according to Steve Durels, the REIT’s leasing director. Three full floors are still vacant, though Mr. Durels said he is in talks to lease “a significant portion” of what remains. He said asking rents were $36 per square foot. Meanwhile, 4 New York Plaza, where the Daily News moved last spring, has reached full occupancy.
As for perhaps the most closely watched prospective tenant for the area, Mr. Riguardi does not believe that Citigroup will make the move downtown. “They are still evaluating lots of alternatives. There is emotion,” he said, “and then there’s economics.”