Everybody knows, or claims to know, that downtown is hot: Companies are moving in from other parts of Manhattan, chasing lower rents and/or the swelling energy and burgeoning amenities of FiDi, the World Trade Center and Battery Park City.
The phenomenon is of the essence in the debate over whether the Port Authority should offer Larry Silverstein a $1.2 billion loan guarantee needed to build 3 WTC.
Those who support the idea — Realty Check included — argue that 3 WTC is needed to restore most of the space destroyed on 9/11 and to fully affirm downtown’s recovery and renaissance, and that its 2.5 million square feet will find tenants soon enough.
Those opposed to the financing deal claim the PA can’t afford the risk and that the added floors will result in an office-space “glut” when the tower opens in 2017. Editorials in other newspapers stubbornly, and stupidly, claim a “glut” exists now.
But exactly how hot is downtown in terms of tenants coming and going? We asked CBRE to pull some numbers — and they are revelatory.
They don’t reflect current availability — we’ll get to that later — but rather momentum, which is quantified here more precisely than ever before. And in commercial real-estate, as in any business, the direction in which things are moving can be the whole ballgame.
From January 2011 through March 2014, companies moving from Midtown and Midtown South to below Canal Street gobbled up 6.87 million square feet of space, CBRE found.
In comparison, companies leaving downtown for Midtown or Midtown South accounted for just 1.74 million square feet.
Previous big-name relocations to the Wall Street/WTC/BPC area include the well-known ones of Condé Nast to 1 WTC and law firm Jones Day to Brookfield Place.
But the “in” turnstile just keeps on clicking. The first three months of this year saw 808,463 square feet taken by firms migrating south, according to CBRE.
Very nice, skeptics say, but what about the fact that downtown has more space on the market than it did a year ago?
It’s technically true, but near meaningless. Yes, CBRE counts current overall downtown availability at 14 percent, compared with 13.5 percent in 2013 (but an improvement over 14.2 percent in 2012).
In any event, 14 percent is a quite normal pattern, as it includes 1.3 million square feet just added to the inventory at 1 WTC. Again, look at the trend: CBRE tallied 630,010 square feet of positive net absorption last year versus negative net absorption in 2012 of 3.23 million feet.
While momentary availability is a clumsy measure of market vitality, a more meaningful, but often overlooked, yardstick is one we’ll call leasing activity as a percentage of inventory (LAPI).
And downtown’s LAPI performance is healthier than uptown’s. In 2013, says CBRE, downtown’s 83 million square feet saw 5.7 million feet leased, or nearly 7 percent of the whole stock.
In the same year, Midtown’s and Midtown South’s combined 307 million square feet saw total leasing of 19.24 million feet — about 6.3 percent. Downtown leasing on a LAPI basis was also slightly ahead of Midtown and Midtown South for the first quarter of 2014.
Prominent among downtown’s new tenants are the so-called TAMI group — technology, advertising, media and information services, which have supplanted the old FIRE trio (finance, insurance and real estate).
TAMI tends to draw employees from the ranks of the creative young who live in the city’s hipper neighborhoods, all of which lie close to downtown.
Downtown Alliance President Jessica Lappin said of the data, “The demand makes sense and is not surprising given the overall context, including lower rents and the best transit access.
“It’s also where the talent is — our proximity not only to Manhattan but to Brooklyn and the New Jersey waterfront.”