Jones Lang LaSalle data demonstrates the groundwork has been laid for Lower Manhattan’s next great transformation 10 years past the September 11 tragedy.
Having weathered a volatile economy and ongoing cycles of recovery, rebuilding and consolidation, Lower Manhattan is poised to capture demand not witnessed since the beginning of the previous century.
According to Jones Lang LaSalle’s report, “Lower Manhattan 10 Years Later,” although the historic district remains the home of Wall Street, local government, professional services, media and technology firms will occupy a greater share of Lower Manhattan office space going forward.
“The confluence of a number of encouraging trends will have a tremendous effect on Lower Manhattan in the next 10 years,” said Peter Riguardi, president of Jones Lang LaSalle’s New York region.
“Along with the entire city, Lower Manhattan will continue to benefit from the continued migration of a highly educated, creative workforce to urban centers. In addition, the Lower Manhattan submarket has evolved beyond its traditional reliance on financial services to become the preferred home of creative industries and professional services firms, which are adding to the vitality to the area.”
The tremendous volume of ongoing and planned construction and infrastructure projects is another factor having a positive impact on Lower Manhattan’s business climate. New, high-quality office buildings will soon be delivered to the market, significantly improving the overall quality of Lower Manhattan’s inventory of office space.
Tenants currently mulling leasing office space in New York are also eyeing the billions of dollars in existing and planned transportation infrastructure improvements that will give Lower Manhattan an advantage over other markets. Finally, governmental agencies at all levels remain eager to provide support both in the form of incentives and quality-of-life improvements for tenants, residents and tourists.
Combined with the removal of nearly seven million square feet of older stock since 2001, either through demolition or conversion, Lower Manhattan will boast a much newer inventory of office buildings within five years.
“Compared with other national and international office markets, Manhattan has a significantly older stock – 1950 is the average completion date for the city’s office buildings,” Riguardi.
“This has been especially conspicuous in Lower Manhattan: by 2001, only two buildings, totaling 2.1 million square feet, had been constructed in the previous decade. In contrast, 16 buildings, totaling 10.2 million square feet, had been constructed in Midtown during the same time period.”
This is set to change, as Lower Manhattan has become the site of one of the largest expansions of office inventory in the country. By 2016, up to 15.4 million square feet , or 17.0 percent of the Class A, Lower Manhattan office stock, will have been constructed since 2001, inclusive of 7 World Trade Center, 200 West Street (Goldman Sachs) and the World Trade Center site.
Much of this new space will include large floor plates, and the latest in infrastructure, communication and sustainable technology. All these buildings are expected to be certified as LEED Gold properties by the U.S. Green Building Council.
Highly Educated, Creative Workforce
“Recent demographic trends show that Lower Manhattan remains a destination that is more than capable of attracting and retaining top human capital,” said Riguardi. “Lower Manhattan, along with adjacent neighborhoods, has become a preferred location for industry leaders and decision makers to live and work.”
Lower Manhattan has seen a dramatic rise in the education level of its residents, which is being mirrored in the populations of the adjacent neighborhoods of Tribeca, SoHo, Hudson Square and Greenwich Village. The percentage of college-educated adults in these areas rose from 43.6 percent in 1990 to 53.5 percent in 2010, compared with 24.8 percent nationally. In addition, 20 percent of the population has advanced degrees, compared with 9.0 percent nationally.
The city of New York has the largest potential workforce — defined as the population within a seven-mile radius — in the United States. This pool of talent will only increase as a younger, educated population migrates to Brooklyn, Queens and parts of New Jersey. Since 1990, the population within a seven-mile radius of Lower Manhattan has grown by 12 percent, far outpacing the state of New York, which rose by just 7.6 percent in the same period.
Diversification of Tenant Base Beyond Financial Services
“The diversification of Lower Manhattan away from the financial services sector is sometimes over- emphasized,” noted Riguardi. “Wall Street and all the businesses in its orbit still generate the majority of the leasing activity in Lower Manhattan. So far this year, the financial services industry can claim six of the top 10 deals Lower Manhattan. In 2001, financial services accounted for six out the top 10 leases for the entire year.”
In the past decade, however, Lower Manhattan has attracted space users from many new industry sectors. The submarket boasts clusters of creative and professional firms, and many of them relocated to Lower Manhattan from Midtown and Midtown South. New York has also seen a resurgence of the technology sector, which has been a key driver of new demand.
In 2011, the publishing giant Condé Nast preleased 1.1 million square feet at Tower One at the World Trade Center, making the transaction one of the largest deals citywide year-to-date.
Law firm WilmerHale leased 210,000 square feet of office space at 7 World Trade Center, moving from 399 Park Avenue. In 2010, the Daily News recorded one of the top 10 deals of that year by signing for 100,000 square feet at 4 New York Plaza in its relocation from Midtown. In 2009, The Gap signed the largest new lease in Lower Manhattan at 40 Worth Street, relocating from Chelsea.
Other recent media relocations include American Media, American Lawyer, Newsweek, The Deal, Vibe Media, Spin Magazine, Mansueto Ventures (Fast Company and Inc.), WNYC, The Knot (www.theknot.com) and Omnicom, the global advertising conglomerate.
Technology firms make up a significant portion of the active requirements in Manhattan, with 45 technology companies in the market for a combined total of 3 million square feet. After a significant decrease in 2009, high-tech employment has been increasing every quarter. By 2013, the county of New York (Manhattan) should see employment levels equal to those of the 2001 peak.
Improved Transportation Infrastructure
“New York has the highest percentage of transit users in the nation and Lower Manhattan offers the highest level of connectivity,” said Riguardi. “In the face of rising fuel costs and congestion — and perhaps one day congestion pricing — transportation centers, like Lower Manhattan, will fare better than competing markets.”
Nearly 50 percent of people commuting to work in Manhattan use public transportation and that figure continues to increase. The percentage of New Yorkers going to work via public transportation rose by 4 percent between 2000 and 2009.
Considering that New York’s subway system was originally planned around Lower Manhattan, the system has unparalleled access to adjacent neighborhoods that have a growing office-using work force, including the New Jersey Waterfront, Queens and Brooklyn.
The existing transportation infrastructure in Lower Manhattan includes 12 subway lines, 30 bus routes, six ferry terminals and 12 routes, and the Port Authority Trans-Hudson train to New Jersey.
Planned transportation infrastructure improvements include the World Trade Center PATH Transportation Hub, located at Church and Fulton streets, which will accommodate more than 250,000 pedestrians per day; and the Fulton Street Transit Center, which will link 12 subway lines with the PATH and accommodate more than 300,000 riders daily.
Since September 11, 2001, Lower Manhattan has widened its reputation as a business-friendly real estate market with incentives offered at the city, state and federal levels. While these aggressive incentives are designed to increase employment and economic expansion, they do so by encouraging tenants to relocate to or stay in Lower Manhattan.
“While government funding has been allocated to attract office tenants to Lower Manhattan, a great deal of effort has also gone into increasing the quality of life for the residents, workers and tourists,” said Riguardi.
More than $100 million has been allocated toward projects at more than 20 park sites throughout the downtown area since 2002.
In addition, $27.4 million in grants has been awarded to 64 Lower Manhattan art organizations and projects, and another $37 million in Community Enhancement Fund grants went to support a variety of community improvements.
The past 10 years have been a tumultuous time for Lower Manhattan; yet, Jones Lang LaSalle expects that, over the next decade, Lower Manhattan will experience its greatest transformation since the beginning of the previous century.
The company predicts that professional services, media and technology will take a greater share of office space even while Lower Manhattan maintains its status as financial hub of the world.
Lower Manhattan’s real estate market will also undergo significant changes in the next five to 10 years. The submarket’s proportionate share of office leasing activity, which typically represents 30 percent of all Manhattan leasing activity, will increase substantially over the next five years. This looming boost in leasing activity will help absorption of office space in Lower Manhattan turn positive for the first time since 1995.
Jones Lang LaSalle expects that the tremendous volume of construction of new, state-of-art office buildings will help erode the 40 percent discount in rents reported for Lower Manhattan office product as the submarket’s new space will be more competitive with Midtown properties.