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Market Analysis

Update on WTC Tenants And Relocation Patterns;
Downtown Availability Rate Tops 23%

New York, New York. April 2, 2003. TenantWise continues to track tenant relocation and the effects of the September 11th attack upon Manhattan’s real estate markets and economy. All reports are available at www.tenantwise.com.

Situation Overview:

The destroyed properties of the World Trade Center (“WTC”) and the damaged surrounding properties represent a total of 34.5 MM sq. ft. of office space. Six buildings were destroyed, accounting for 13.4 MM sq. ft., and 23 surrounding properties were damaged, accounting for another 21.1 MM sq. ft. of office space. Overall, the destroyed and damaged property was a loss affecting 60% of Downtown Manhattan’s Class A office space. (Downtown is defined as the area south of Chambers Street.) Fourteen of the 23 damaged buildings, or 17.5 MM sq. ft., have now been restored to service. The remaining 8 damaged buildings, or 3.5 MM sq. ft., have not announced projected opening dates. (For further details, see Special Report: Damaged Areas at www.tenantwise.com/wtc_damage.asp.)

TenantWise research indicates that there were 186 non-governmental tenants over 10,000 sq. ft. in size (“larger tenants”) in the WTC buildings (“destroyed properties”) and the 23 damaged buildings surrounding the WTC (“damaged properties.”) Out of a total 34.5 MM sq. ft. in destroyed and damaged properties, the larger tenants occupied approximately 25.2 MM sq. ft. TenantWise estimates that governmental tenants accounted for an additional 1.8 MM sq. ft., and the remainder of 7.5 MM sq. ft. was occupied by smaller tenants.

TenantWise has maintained contact with each of the larger tenants and tracked these companies’ transition since 9/11. The survey results of their relocation plans form the basis for the research included in this continuing series of reports. TenantWise assumed that 100% of the governmental tenants will remain in Manhattan, and predicted the destination relocations of the smaller tenants by applying the same percentage trends as exhibited by the larger tenants. The results, from a geographical viewpoint, are as follows:

Remaining Downtown: A total of 17.9 MM sq. ft., or 52% of the total affected 34.5 MM sq. ft., will remain Downtown.
  • 13.9 MM sq. ft. will be reoccupied Downtown
• 2.0 MM sq. ft. was backfilled Downtown
• 2.0 MM sq. ft. was leased Downtown
Leaving Downtown: A total of 16.2 MM sq. ft., or 47% of the total affected 34.5 MM sq. ft., will leave Downtown.
  • 10.4 MM sq. ft. was leased outside of Downtown
• 5.8 MM sq. ft. was backfilled outside of Downtown
Undecided: A total of 0.4 MM sq. ft., or 1% of the total affected 34.5 MM sq. ft., is undecided.

In terms of job distribution, TenantWise estimates that relocation decisions noted above will result in the following broad categories of job dispersion:

Jobs leaving Downtown: 64,909   Jobs leaving to Midtown: 39,992
Jobs returning Downtown: 71,585   Jobs leaving to New Jersey: 16,334
Undecided: 1,425   Jobs leaving to Elsewhere* 8,583
Total: 137,919     64,909
*Elsewhere is defined as non-NJ and outside of Manhattan

Relocation decisions follow three possible outcomes: reoccupy; lease new space; or backfill existing space. From a transactional viewpoint, the results are as follows:

40%, or 13.9 MM sq. ft. of space, will be reoccupied as tenants return to damaged properties
New Leases: 36%, or 12.4 MM sq. ft. of new space, was leased on a long-term basis as follows:
  • 6.7 MM sq. ft. was leased in Midtown
• 1.5 MM sq. ft. was leased in New Jersey
• 2.1 MM sq. ft. was leased Elsewhere
• 2.1 MM sq. ft. was leased Downtown
23%, or 7.8 MM sq. ft., has been backfilled into other unaffected space that was unoccupied or made available within a tenant's existing real estate portfolio as follows:
  • 3.2 MM sq. ft. backfilled in Midtown
• 2.6 MM sq. ft. backfilled in New Jersey
• 2.0 MM sq. ft. backfilled Downtown.
Undecided: 1%, or 0.4 MM sq. ft. of space is represented by tenants that have not yet made their relocation plans known

A representation of all tenant relocations from both destroyed and damaged properties is as follows:

The attack of September 11th reduced the real estate inventory Downtown from 97 MM sq. ft. to 84 MM sq. ft. In a market already weakening prior to September 2001, this decline in supply would be expected to have an upward effect on leasing prices. However, more than a year after the tragedy, very little demand has been generated by displaced tenants; only 12.4 MM sq. ft. of space was newly leased out of total of 34.5 MM sq. ft. affected. A full 7.8 MM sq. ft. was backfilled into space that was being warehoused by corporations prior to the attack (now commonly known as “shadow space”.) Therefore, the reduction in inventory was not offset by leasing demand and was exacerbated by a significant exodus from the area.

In damaged properties alone, 13.9 MM sq. ft. out of the total of 21.1 MM sq. ft. will be reoccupied. Nearly 40% of the tenant base has chosen not to return to facilities that will be repaired. A real concern in the next 3-5 years or more is that as leases expire tenants will consider moving away.

TenantWise examined the relocation decisions of tenants from both destroyed and damaged properties. The alternatives available to each tenant varied, and decision-making also followed different patterns. Below are the results of the surveys of tenants from destroyed properties as well as surveys of tenants from the damaged properties.

Destroyed Property Overview

TenantWise has determined that on September 11, 2001, the destroyed properties of the World Trade Center had 450 tenants in 13.4 MM sq. ft. Of the total 450 tenants, 75 were non-governmental, over 10,000sq. ft. in size, and represented 8.6 MM sq. ft. 74 of 75 larger tenants from destroyed properties have made relocation decisions.

The employee populations of tenants from destroyed properties will be disbursed as some companies have decentralized operations and have secured space in several locations. These relocation decisions involving new leases as well as backfilling result in the following movement in square feet and jobs:

Relocation Destination Square Footage Jobs Percentage
Midtown 4.7 MM 18,937 55%
New Jersey or Elsewhere 2.6 MM 10,429 30%
Downtown 1.2 MM 4,798 14%
Undecided 0.1 MM 385 1%
Total larger tenants 8.6 MM 35,548 100%

Tenants from most damaged properties have the option to return to former offices. However, approximately one-third chose not to move back, splitting almost equally between Midtown and New Jersey. Staying in Lower Manhattan was not a serious choice as only 18% of those that chose to relocate decided to go to another property Downtown.

Recent movement by tenants

While changes from the last TenantWise report yield only a small percentage change in relocation plans, there are a few transactions that are noteworthy:

  • Thacher Profitt & Wood sublet 139,000sf from Merrill Lynch at 2 WFC for long-term relocation.

  • Bridge Information Systems will remain in Times Square with parent company,

  • Reuters and not return to its 70,000sf office at 3 WFC.

  • Gabriele, Hueglin & Cashman is now operating as part of RBC Dain Rauscher at 3

  • Times Square and will not return to its 30,000sf office at 1 WFC.

  • Gruntal & Co. assets and employees were acquired by BankAtlantic Bancorp, to add to its Ryan, Beck & Co. subsidiary. Gruntal will no longer operate from its 201,779sf office at 1 Liberty. All Gruntal employees have relocated to Ryan, Beck offices in Midtown.

  • Headstrong sublet space at 220 West 42nd Street for 5 years and will not return to its 31,478sf office at 1 Liberty Plaza.

  • New York Mercantile Exchange is in negotiations to exit its lease at 22 Cortlandt St., so that it may relocate to existing offices at the NYMEX Building, 1 North End Avenue.

  • American Express has taken its sublease of 350,000sf at 3 WFC off the market.


For further information contact:
M. Myers Mermel
Chief Executive Officer
(212) 943-7777
Caroline McLain
Chief Financial Officer
(212) 943-1902

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