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Market Analysis

WTC Tenants stabilize with 53% returning Downtown;
however Downtown continues to weaken with a 20% availability rate.

New York, New York. July, 2002. TenantWise.com continues to provide comprehensive information regarding the effects of the September 11th attack upon Manhattan’s real estate markets and economy. TenantWise.com is an online real estate market research and leasing firm offering complete listings of all office availabilities in Manhattan, tenant representation services with a discounted fee schedule, and extensive information on the market and the lease transaction process. This report is sixth in the series of reports about the impact of the September 11th attack on the affected tenants in the WTC buildings and surrounding damaged properties as well as the overall Downtown office market. 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.) Thirteen of the 23 damaged buildings, or 16.3 MM sq. ft., have now been restored to service. 101 Barclay Street (1.2 MM sq. ft.), is expected to open this summer, and the remaining 9 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.com 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 24.5 MM sq. ft. TenantWise.com estimates that governmental tenants accounted for an additional 1.8 MM sq. ft., and the remainder of 8.2 MM sq. ft. was occupied by smaller tenants.

TenantWise.com 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.com 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 18.3 MM sq. ft., or 53% of the total affected 34.5 MM sq. ft., will remain Downtown.
  • 15 MM sq. ft. will be reoccupied Downtown
• 1.7 MM sq. ft. was backfilled Downtown
• 1.6 MM sq. ft. was leased Downtown
Leaving Downtown: A total of 15.6 MM sq. ft., or 45% of the total affected 34.5 MM sq. ft., will leave Downtown.
  • 9.7 MM sq. ft. was leased outside of Downtown
• 5.9 MM sq. ft. was backfilled outside of Downtown
Undecided: A total of 0.6 MM sq. ft., or 2% 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: 62,467   Jobs leaving to Midtown: 37,687
Jobs returning Downtown: 73,221   Jobs leaving to New Jersey: 17,575
Undecided: 2,231   Jobs leaving to Elsewhere* 7,205
Total: 137,919     62,467
*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:

43%, or 15 MM sq. ft. of space, will be reoccupied as tenants return to damaged properties
New Leases: 33%, or 11.3 MM sq. ft. of new space, was leased on a long-term basis as follows
  • 6.4 MM sq. ft. was leased in Midtown
• 1.5 MM sq. ft. was leased in New Jersey
• 1.8 MM sq. ft. was leased Elsewhere
• 1.6 MM sq. ft. was leased Downtown
22%, or 7.6 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:
  • 3.0 MM sq. ft. backfilled in Midtown
• 2.9 MM sq. ft. backfilled in New Jersey
• 1.7 MM sq. ft. backfilled Downtown.
Undecided: 2%, or 0.6 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 total real estate inventory 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, at nine months from the tragedy very little demand has been generated by displaced tenants; only 11 MM sq. ft. of space was newly leased out of total of 34.5 MM sq. ft. affected. A full 7.6 MM sq. ft. was backfilled into space that was already under lease by corporations. So we find that the reduction in inventory was not offset by leasing demand and was exacerbated by a general exodus from the area.

In damaged properties alone, we find that 15 MM sq. ft. out of the total of 21.1 MM sq. ft. will be reoccupied. Roughly 30% of the tenant base has chosen not to return to facilities that will be repaired. Since we lack information regarding the repopulation of space damaged by other commercial office casualties, it is difficult to judge whether this departing percentage is a reasonable expectation. One would assume, however, that existing leases will remain in full force and effect in the damaged buildings if restoration timelines are met. Departing tenants will have the choice of subleasing, buying out of leases, or litigating in order to mitigate liabilities under remaining leases that are in effect.

TenantWise examined the real estate decisions made by tenants in 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.com 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 8.4 MM sq. ft. TenantWise surveyed each of the 75 tenants and found that 72 of 75 larger tenants from destroyed properties have made relocation decisions.

The employee populations 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 4.5 MM 18,094 54%
New Jersey or Elsewhere 2.7 MM 10,659 32%
Downtown 0.94 MM 3,773 11%
Undecided 0.28 MM 1,125 3%
Total larger tenants 8.4 MM 33,651 100%

86% of the square footage represented by larger tenants from the destroyed properties is moving out of Lower Manhattan. Only 11% will relocate Downtown while 3% remain undecided.

The tenants of the destroyed properties had no ability to return to former offices. Midtown was the overwhelming winner as a location destination for these tenants. However, almost one-third chose to move out-of-state. Tenants chose this path out-of-state almost three times more than relocating somewhere else Downtown. The high percentage of "move-outs" to the low percentage of "move-close-bys" was not precluded by issues of pricing (as pricing at Downtown locations was comparable to or less than New Jersey sites) or availability (as Class A alternatives were plentiful in New Jersey and to a lesser extent in Lower Manhattan markets.) At September 12th, eight blocks of space over 100,000 sq. ft. were available in Class A buildings in Lower Manhattan. At January 1st, 25 blocks of space over 100,000 sq. ft. were available.

Qualitative considerations caused many tenants to move outside Manhattan. The qualitative concerns included security, transportation, overall safety and perception of danger. Some companies indicated to cost-conscious shareholders that 9/11 was reason enough to relocate company operations outside of Manhattan, despite higher rents. The easy availability of new -- and in many cases finished office space -- in New Jersey accelerated the trend. Ultimately, the real estate product leased in New Jersey was newer than office space leased in Lower Manhattan. According to TenantWise research, 87% of all relocations to New Jersey were to buildings constructed after 1988. The high percentage of move-outs to Midtown and New Jersey versus staying in Lower Manhattan created the current high vacancy level in the Lower Manhattan marketplace.

Damaged Property Overview

TenantWise.com has determined that on September 11, 2001, the damaged properties had 389 tenants in 21.1 MM sq. ft. 111 of these tenants were non-governmental, over 10,000 sq. ft. in size, and represented 16.1 MM sq. ft. TenantWise surveyed each of the 111 tenants and found that 108 of 111 larger tenants have made relocation decisions.

The employee populations 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
Reoccupy 10.6 MM 42,453 66%
Midtown 2.5 MM 9,928 15%
New Jersey or Elsewhere 1.9 MM 7,781 12%
Downtown .81 MM 3,256 5%
Undecided .27 MM 1,107 2%
Total larger tenants 16.1 MM 64,525 100%

66% of the square footage represented by larger tenants from damaged properties will be reoccupied; 27% has committed long-term to leave Downtown.

Tenants from damaged properties, as noted, 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 15% of those that chose to relocate decided to go to another property Downtown.

FIRE Industry Tenants

TenantWise also analyzed surveyed tenants by industry and found that overall, tenants representing 81% of the square footage or 26.5MM sq. ft. of the 34.5MM sq. ft. total (106,085 jobs) were in the Finance, Insurance and Real Estate Industries, or "FIRE". Therefore, movements by the FIRE tenants are the bellwether for the tenant mix in the destroyed and damaged properties, if not Downtown as a whole.

Of the 26.5MM sq. ft. of all tenants represented by the FIRE industries, companies will either backfill or relocate to the following areas: 50% or 13.4MM sq. ft. will leave Downtown; 48% or 12.6MM sq. ft. will move back Downtown; and 2% or 0.5 MM sq. ft. remain undecided.

Partitioning the FIRE tenants into tranches of square footage size introduces trends among them. For example, 81% of square feet represented by tenants under 20,000sf in size will be reoccupied, while only 49% of the square feet represented by tenants over 1 MM sq. ft. in size will be reoccupied. Note that 81% of square footage represented by tenants between 10,000 sq. ft. and 20,000 sq. ft. translates to only 2,361 jobs staying Downtown. To put the relative impact of the percentage of companies by square feet size returning jobs to Downtown in perspective, we compared all sizes from 10,000 sq. ft. as follows:

* Tenants compared by 9/11 address and square footage in affected properties

The 100,000-250,000sf category has an unusually large core of companies that moved all or some of their operations, a total of 1.85 MM sq. ft. Of these relocation decisions, 2.1 MM sq. ft. out of a total 3.6 MM sq. ft. left Downtown; 1.3 MM sq. ft. remained; and 0.17 MM sq. ft. are undecided. Those leaving Downtown entirely were as follows:

Company (100-250,000 sq. ft.) 9/11 SF
Fiduciary Trust Co. 245,156
Cantor Fitzgerald Securities 240,000
Guy Carpenter 180,000
Credit Suisse First Boston 179,244
Long Term Credit Bank of Japan 148,000
Bank of America 132,586
ITT The Hartford Insurance Group 122,590
Garban-Intercapital 111,451
Standard Chartered Bank 111,398
Mizuho/Fuji Bank 182,956
Municipal Credit Union 102,000
Mizuho/Dai-Ichi 100,000
Total 1,855,381

We also examined the number of companies in each tranche of FIRE tenants. Just 12% of the companies are over 250,000 sq. ft. in size. 59%, or the majority of companies, are under 50,000 sq. ft. Perhaps not surprisingly, the tenants over 250,000 sq. ft. accounted for 29,219 jobs, while the companies below that size accounted for only 12,833. If the priority is to keep as many jobs as possible, then the 12 largest FIRE tenants are key to any strategy.


The historical importance of the FIRE industry to Downtown's economy is well known. Numerous efforts have been made to maintain New York's Downtown as the world's financial capital in name and substance in the face of technological and business changes in the finance business. The significant movement of FIRE tenants from the destroyed and damaged properties outside of Downtown was a setback for the real estate market. This exodus has produced federal, state, and city efforts at retention through well-publicized incentive programs.

Again, the large number of firms returning Downtown does not necessarily translate into a large number of jobs returning Downtown. Returns are being made by predominantly smaller companies. The larger companies are splitting and/or relocating employees. These smaller companies are not without risk for future job loss as leases expire. If we assume that the smaller companies work for the larger companies, the smaller could follow their clients out of Lower Manhattan and a second backlash resulting from the departure of the larger companies could occur in the next few years.

The movement of large financial service companies out of Lower Manhattan is documented by the following list of financial companies with 100,000 sq. ft. or more as of 9/11:

Company Name 9/11 sq. ft. in damaged or destroyed properties Relocation Destination *
Bank of America 132,586 Midtown Relocate
Cantor Fitzgerald 245,000 Elsewhere/Midtown Relocate
CIBC World Markets 500,000 Midtown Relocate
Citigroup / Salomon 1,202,900 Midtown/NJ Backfill
Credit Suisse Boston 179,244 Midtown Backfill
Fiduciary Trust Co. Int'l. 245,156 Midtown Relocate
Lehman Brothers 1,075,900 Midtown Relocate
LTCB of Japan 148,000 Midtown Relocate
Mizuho Group: Dai-Ichi Kangyo 100,000 Midtown/New Jersey Relocate
Mizuho Group: Fuji Bank 100,000 Midtown/New Jersey Relocate
Morgan Stanley 840,000 Midtown Relocate
NASDAQ 160,927 Midtown Relocate
Oppenheimer Funds/M. Mutual 231,000 Midtown Relocate
Standard Chartered Bank 111,398 Midtown Relocate

* Companies may have split operations into 2 or more locations. The Relocation Destination is the location(s) to which the most or equal square footage of 9/11 sq. ft. was allocated.

Goldman Sachs and Merrill Lynch have decided to keep headquarters in Lower Manhattan; however these companies have split front offices with other locations in New Jersey.

As a result of these moves, a recovery in the economy will not produce a similar recovery in the Lower Manhattan market. The number of FIRE employers in Lower Manhattan that would typically re-hire employees in Lower Manhattan has been significantly reduced and job growth may have migrated with them.

FIRE tenants' breakdown of jobs:

Locations: Jobs   Breakdown of Jobs Leaving Downtown                Jobs
Leaving Downtown 53,619   To Midtown 31,043
Returning Downtown 50,436   To New Jersey 15,898
Undecided 2,030   To Elsewhere * 6,678
Total 106,085     53,619
*Elsewhere is defined as non-NJ and outside of Manhattan

Breakdown Of Surveyed Tenants By Size Non-FIRE industries

From our survey group of larger affected tenants from the WTC attacks, we examined the non-FIRE surveyed tenants to determine if these companies made decisions in the same proportion as the FIRE tenants. As shown below, non-FIRE tenants' decisions by square footage size are not consistent with the FIRE tenants. Non-FIRE tenants are generally smaller in square footage terms. Of the FIRE tenants, 63% of the sq. ft. is 500,000 sq. ft. and over. Of the non-FIRE tenants, only 29% of the square footage is over 500,000 sq. ft., and is represented by only one company - Verizon. Verizon occupies the entire building at 140 West Street.


In looking at the percentage of each group that is willing to remain, we find two patterns emerging. The first is that non-FIRE tenants are almost twice as likely to leave as comparably-sized FIRE tenants, especially under 20,000 sq. ft. However, non-FIRE tenants over 50,000 sq. ft. in size are more likely to stay Downtown than comparably-sized FIRE tenants.

In the current discussions regarding rebuilding and retenanting, the fact that smaller non-FIRE tenants have left precipitously does not bode well for the introduction of more non-FIRE tenants, particularly in business sectors not represented in Lower Manhattan like bio-tech and entertainment. All possible efforts must be made to retain the smaller non-FIRE tenant base in order to have a starting place for tenant diversity in the future.


We have seen tremendous change over the last nine months as New York and the nation continue to recover from 9/11. At this juncture, we would like to review the important trends and outcomes we have analyzed over this period.

The pre 9/11 economy was already in a weakened state due to the technology/dot.com bust. Companies, particularly those in the financial services and business services industries, had been laying off employees and putting space back on the market in large numbers.

From December 2000-September 2001, jobs in New York City declined by 47,600. From September 2001-March 2002, jobs in New York City declined by 99,200. The two subgroups hardest hit were FIRE and Business Services:

  Dec. 00 - Sept. 01 Sept. 01 - Mar.02
FIRE (2,700) (33,600)
Business Services (28,800) (10,800)
Source: New York City Comptroller's office

Also, spreads between asking and taking rates had begun to widen. TenantWise.com analyzed all leases executed above 15,000 sq. ft. in 2001, prior to 9/11, in Lower Manhattan. The transactions totaled 19. From January 2001-April 2001, spreads from asking price to taking price were in the 10-15% range; from May 2001 - August 2001, spreads were in the 20-25% range.

Companies were also holding on to excess space that was vacant. Post 9/11, this unused inventory was reflected in the amount of space that companies backfilled. As of June 2002, backfilling represented 7.6 MM sq. ft of the total affected square footage of 34.5MM sq. ft. or 22%.

The expectation that 9/11 would cause a spike in new leasing activity in Manhattan was not realized as companies backfilled space and relocated out of the City. Total affected jobs were 137,919. Only 32,100 jobs were placed in newly leased space in Manhattan or about 8MM sq. ft. This amount of square feet represents only 2.4% of the total inventory of office space in Manhattan post 9/11. Of the 24,780 jobs that left Manhattan, (17,575 to New Jersey; 7,205 elsewhere), only 13,200 jobs went to newly leased space. Overall, only 11.3 MM sq. ft. was in newly leased anywhere post 9/11.

Since 9/11, companies have continued to add space to the market. The weakness in the market before and after 9/11 is reflected in the steady increase in the availability rate. Despite inventory reduction of 13.4MM sq. ft. from 9/11, the availability rate still increased. As of June 2002, the availability rate in the damaged properties averaged 30%.

Although many companies were already pursuing space reduction and efficiency strategies pre 9/11, the impact of 9/11 presented them with several more complex issues to address such as security and safety for employees, transportation, as well as how to quickly regain business and operating productivity. Few companies had contingency plans that were adequate to cover the catastrophic consequences of 9/11. Companies had to react quickly to the situation, but have now further developed their strategies.

The complexity of the decision-making process is reflected in the changes in the major categories of decision making over the last nine months. The amount of square footage committing to Downtown was steadily increasing over the period, however as of June 2002, tenants in square footage slated to move back Downtown declined by 4% from 19.1MM sq. ft. to 18.3MM sq. ft. from March to June. This reflects a reluctance to return, despite stated intentions and the new presence of economic incentives. Although high profile return announcements have been made by companies such as American Express and Merrill Lynch, the multiple decisions of other smaller companies have diluted the benefit of these returns.

Future Trends

The Downtown market has been historically weak. Over the last 16 years, the average availability rate was 16%. The current 20% availability rate is comparable to the rates from 1991 – 1996, which were in the 20% - 24% range. The concern is whether this time the structural tenant dispersion in the Downtown office market and the rapidly changing strategies of companies regarding their office space may truly make the Downtown market weaker than at any time before.

The trends we saw developing post 9/11 are far-reaching for all office occupancy throughout the country but may have a particularly devastating impact on Downtown.

Dispersion, decentralization, bifurcation. More than at any time before, companies occupying space Downtown have been shown their vulnerability. They are quickly responding by dispersing employees to different locations, revising the structure of companies into more decentralized units with greater operating autonomy, some are even bifurcating and completely replicating critical operating units. The 1990’s idea of developing synergies by having all employees in one place at a "one-firm-firm", such as Downtown or elsewhere, is being greatly overshadowed by concerns over business continuity in the face of another disaster.

Terrorism Insurance. The increasing threat of terrorism is causing companies to reconsider the importance of being located in big cities, particularly New York and Washington D.C., which are perceived as continuing targets. With the continued advances in technology, more companies will move critical operations to safer areas and leave representative offices in large cities.

On the landlord side of the issue, terrorism insurance has become a major cost issue. In the face of 9/11, increased demand for terrorism insurance is not being met with sufficient supply. Many insurance companies are not providing terrorism insurance upon renewal and in some cases, not renewing regular liability insurance either. Prior to 9/11, most insurance policies included terrorism coverage at a minimal cost of pennies of the insured value. Since 9/11, costs have increased dramatically and are now 1-2% of the insured value, if available at all. Mortgagees are also pressing mortgagors/landlords to purchase the coverage in order to renew loans. However, the increased costs reduce operating income and cash available for debt service. Since less is available to service debt, the loan-to-value ratios will be less.

These increased costs are also impacting public securities backed by real estate or real-estate related instruments. Fitch and Moody’s recently announced reduced credit ratings on real estate investment trusts, known as REITs, that did not have adequate insurance for their buildings or were simply viewed as having significant property holdings in high-risk areas.

The federal government is seeking to ease the situation, but the issues are complex. A bill has passed the Senate and is in the House of Representatives as of June 20, 2002, for the federal government to provide coverage in the instance of a terrorist attack. Insurance companies would be responsible for the first $10B in losses during the first two years following an attack. At that point, the federal government would pay 90% of the losses over the amount and insurance companies would pay 10%. President Bush will not sign the bill, however, unless the House and Senate agree to include protection against lawsuits for victims of terrorism.

Financial services industry. As we stated in this report, FIRE tenants represented 81% of the square footage of the non-government tenants in the affected properties. Of the 81%, approximately half are moving their employees out of Lower Manhattan. This is a harbinger of an overall reduction of FIRE tenants in Downtown going forward.

If retention programs succeed, this trend will be reversed. If this trend continues, then clearly the programs and the market are not sufficient to pull tenants back.

Leases expiring in Downtown properties not directly affected by 9/11. In our March 21, 2002 report, we suggested that leases expiring over the next five years in unaffected Downtown properties are also a concern. Our equation was as follows:

Number of jobs below Chambers pre 9/11  388,000
Less: Jobs leaving Downtown post 9/11:  (62,467)
Net after impact of 9/11:  325,533
Assuming ½ leases are 10 year duration, assume
½ expire over the next five years (or 50% of jobs):

We believe that approximately 163,000 jobs are vulnerable to relocating as leases covering their occupancy will expire during the rebuilding period. Tenant retention will be an ongoing effort for years to come.

Current status of the Downtown market

The availability rate in the Downtown market stands at 20% as of May 31, 2002. Space continues to be added. Demand is weak. Large transactions such as KPMG (500,000 sq. ft.), Clifford Chance/Rogers & Wells (400,000 sq. ft.), Bear Stearns (350,000 sq. ft. ) have been rumored to be considering Downtown, but none have been completed. AON's intention to move a majority of its employees to Midtown instead of Downtown is another major loss.

TenantWise tracked 60 lease transactions during the period January - May 2002 which totaled 2.4MM sq. ft. 28 of these transactions were over 20,000 sq. ft. in size and accounted for 2.1MM sq. ft. Of the 2.1MM sq. ft, 0.8MM sq. ft. was a Bank of New York month-to-month lease. Of the 28 larger transactions, 13 were FIRE tenants and represented 1.5 MM sq. ft. or 71% of the total.

The lease-up of 2.4MM sq. ft. through May 2002 did not overcome the total square feet put on the market in Lower Manhattan during the period: year-to-date net absorption through May 2002 was negative 1.6MM sq. ft.

Although there are signs of recovery in the national economy, market indices continue to fare poorly. Until the stock markets improve, financial services tenants, a critical component of the Downtown office market, will be stymied and will not re-hire and lease more office space. The technology companies and the financial services were hand-in hand on the upsurge and are now in the same place on the lower-end of the scale.

We have attempted to report information since 9/11 on a factual, statistical level to provide the community with up-to-date information on the dramatic changes in the Lower Manhattan office market that ultimately affect all of Manhattan. In our next report, we will present a new format with an emphasis on the current and future markets. However, we will not forget those that lost their lives in the horrific and shameful attacks of 9/11. Our prayers are with those who passed away and their friends and families who are left without their loved ones.

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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