Last week was the 12th anniversary of 9/11. These events affected everyone throughout the city but also had a significant impact on the city’s commercial real estate market. I remember gathering data and statistics on companies that had been temporarily and permanently displaced from their buildings downtown. Fast forward to today, when my research team is looking at the growing trend of tenants migrating into Lower Manhattan over the past 20 months.
Since January 2012, 94 companies moved from Midtown and Midtown South to Downtown, which accounts for 37 percent of the 5.6 million square feet of new leases signed during this time. Despite having the highest availability rate of the three major markets at 13.6 percent, Downtown has been in high demand. Of these 94 tenants, almost two-thirds of them were from the TAMI sector (37 percent) and professional services (26 percent) industries.
Tenants appear to be considering Downtown as a serious option, especially as they are seeking cheaper alternatives to Midtown South. Yes, you read that correctly—Midtown South. Through August, Midtown South’s overall average asking rent is more than $12.00 per square foot higher than Downtown’s—the widest spread between these two markets in recorded history. Aside from just a value-driven decision, tenants also have looked to Midtown South as its available supply gets tighter—currently at 8.7 percent. In the past 20 months, just under 2.1 million square feet of new leases were signed by tenants migrating out of Midtown South.
So depending if you are a glass is half-full or half-empty type of person, the extra 5.8 million square feet of new supply coming online by the end of first quarter 2014 will either create more opportunities for tenants to lease space downtown or inundate the market with space. I am an optimist and am banking on the new space to be welcomed with open arms.