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Momentum building in downtown market

By Holly Dutton

Despite a sluggish April, the future looks bright for the downtown office market.

Lower Manhattan is on fire — and real estate leaders, city officials, and tech entrepreneurs are taking notice.

More than 600 tech companies call the area south of Chambers Street home; a 24 percent jump from just a year ago when that number was at 500, according to a report from the Downtown Alliance.
The firms range from smaller startups to better known companies such as Refinery 29 and Fast Company, to corporations including Sapient and Investment Technology Group.

Brookfield Place
Brookfield Place

These figures give reason for optimism, despite the recent fall in rents. Between April and May, the average asking rent fell from $50.99 to $48.53, according to Colliers International, driven in part by The Durst Organization slashing rents at lower Manhattan’s most notable tower, One World Trade Center.
Though 1 WTC has struggled to find tenants, total leasing among tech companies in Lower Manhattan grew 53 percent from 2011 to 2012, from 180,000 square feet to 274,800 square feet.

Since last August, the leasing has already surpassed the 2012 year-end total, reaching 351,300 square feet.
And there has been $6 billion invested in infrastructure in Lower Manhattan in recent years, including major projects like the Fulton Center WTC Transit Hub, the World Financial Center Ferry Terminal, and the Staten Island Ferry Terminal.

John Wheeler
John Wheeler

At a NAIOP panel on the 54th floor of the nearly-completed 4WTC, which opened last November and has 2.5 million s/f of office space, 60 percent of which has been leased so far, a panel of executives from commercial real estate, city planning and the creative/tech fields spoke about the growing draw of downtown.

“I think the workforce has changed a lot and what employers and employees want has changed,” said Adam Foster, senior vice president at CBRE. “They want urban settings.”

Noting that 7.5 million s/f of commercial space has been filled in the Financial District in the past three years, Foster added, “They want affordable space and a sense of community. There’s a lot of momentum, and momentum breeds success. People used to just come downtown for affordability – it’s not the case anymore.”

The push to make FIDI more of a full-fledged community than just where people go to work and then leave, has grown as more people choose to live downtown.
And though there are still standard institutional tenants like insurance and financial firms, “their footprint is shrinking,” said John Wheeler, managing director of Jones Lang LaSalle.

Wheeler said he had never seen retail, hospitality and office all on an upward trend — and seeing “top retailers” come downtown for the first time in his 20-plus year career.

“Tenants are really buying into the community,” he said.

David Berkey, executive vice president of L&L Holding Company, also recalled FiDi of 30 years ago, when it was just FiDi. “It has become a 24/7 community which it wasn’t – it was lacking,” he said. “It’s like a garden we’ve been watering and it’s finally blooming.”

When Andrew Essex’s company, Droga5, was becoming overcrowded in Noho and with 68 percent of his staff living in Brooklyn, the vice chairman of the global ad agency considered moving the company’s HQ across the river, but took a look “everywhere” before deciding on FiDi.
“I couldn’t be happier,” he said. “There’s a sense that we’re part of something that’s just beginning to explode.”

Shared work space entrepreneur Miguel McKelvey, co-founder of WeWork, which has nearly 200 employees, was previously headquarted in Soho before moving to its current space at 222 Broadway, with 121,000 s/f.

“People didn’t think this part of town was full of creators,” said McKelvey, who admitted that when they announced their move downtown some of his employees had no idea where 222 Broadway was. “But it’s across the board.”

Though McKelvey cautioned against the changing neighborhood possibly becoming “more annoying than cool.”
“We need much more diversity of options,” he said of the area’s retail and restaurant scene, urging real estate executives to bring in “more authentic” businesses.

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