What Can We See In Manhattan's Urban Future?

Staley examines potential market responses to attacks

The terrorist attacks on the World Trade Center and the Pentagon evoked core emotions rarely seen in the United States on a national level. In the short term, these emotions have been directed toward rooting out the terrorists responsible for the attacks, and policymakers at the national level have focused on a new campaign against terrorism. Few, however, have yet truly grasped the profound change in attitudes that the attacks provoked. Fewer still, have begun to look at the longer-term implications, and how events of such seismic proportions influence the entire range of human choices and behavior in a pluralist, free society.

One of these areas that may be greatly influenced is the way individuals relate to their cities�the built environment�and whether these shifts in attitudes will change fundamental trends in their evolution. Reason has begun addressing these issues, first with a widely read commentary by Urban Futures Program policy analyst Leonard C. Gilroy that was featured on the planning Web site Planetizen.com, and more recently through interviews conducted by the New York Times and Dallas Morning News with Urban Futures Program director Samuel R. Staley. Below are some questions Reason asked Sam about the World Trade Center, the effect of the attacks on New York City's office real-estate market, and implications for the future of city workers nationally.

Reason: First, a few facts. How much commercial office space in New York City was lost as a result of the terrorist attacks?

Staley: Most of us visualize the twin towers when we think of the World Trade Center. The towers, however, were just the most visible part of a whole complex of buildings that made up a substantial portion of Lower Manhattan. The attacks directly affect an area far greater than the twin towers�at least 20 buildings were damaged or destroyed when the towers fell. The terrorists destroyed the office-space equivalent of some entire downtown areas of major American cities.

Here are some numbers to put it in perspective. The twin towers alone housed about 9.5 million square feet of commercial office space. That is almost twice the total commercial office space in Nashville, Tennessee's Central Business District (CBD), which comprises 5.7 million square feet. When we include the other buildings damaged or destroyed, the attacks took out about 30 million square feet of prime commercial office space in Lower Manhattan�more than five Nashville CBDs. About 13 million square feet (40 percent of the total damaged) was destroyed.

Reason: Does this mean the New York City office market has been crippled?

Staley: Not really. Despite the devastating loss, Manhattan had more than 350 million square feet of office space total before the attacks. Again, for comparison purposes, Chicago and its suburbs�the nation's third largest metropolitan area�house about 193 million square feet of commercial office space, a little more than half of Manhattan's entire office market. The Dallas metropolitan area's commercial office market is about the same size as Chicago's. Atlanta has about 123 million square feet, and the Boston area has 133.8 million square feet. Therefore, the loss of the WTC and other buildings represents just 4 percent of the total Manhattan office-space market. This is not such a large share that Manhattan cannot recover despite the scale of the loss.

Moreover, Insignia/ESG, a commercial real-estate firm in New York City, estimates that 25.8 million square feet were either vacant or near ready to come on line. Downtown Manhattan alone had an office-vacancy rate of 6.2 percent before the attacks. Midtown Manhattan had a 7.0 percent vacancy rate; Midtown South Manhattan had a 9.5 percent rate. Thus, many of the firms that were displaced when the WTC complex was destroyed will be able to find office space elsewhere in Manhattan or in the nearby boroughs.

Reason: Will New York City absorb the loss without impact?

Staley: Unfortunately, this is unlikely. While the numbers seem like a wash�available vacant office space is roughly equivalent to the amount destroyed or needed for displaced tenants�the loss of so much office space in such a short period of time may well realign the prime commercial office market. This can happen for a number of reasons.

First, just because vacant office space exists doesn't mean it's the right kind of space that the displaced tenants need. Some firms need large amounts of office space�several tenants of the twin towers occupied multiple floors, for example�while others will need specialized office space with features designed to accommodate their business. Older office spaces may not be suitable for hi-tech businesses.

Second, and perhaps more importantly, new office space was being built before the attacks because developers believed a market existed for new space. So now all that new and vacant office space has to go to displaced firms in the existing market, and new space won't available to develop or sustain growth in the market.

Reason: Won't this office space be rebuilt if there's a demand for it?

Staley: In principle, yes; that's the way markets function. But commercial office development is a complex process, full of regulatory and bureaucratic hurdles. While new projects in Lower Manhattan are likely to get more of a green light from the city in an effort to rebuild, it will still take several years to replace the lost office space. By that time, most companies will have already found other permanent space, either in Manhattan or somewhere else in the region.

I think it is unlikely all the office space will be replaced for two reasons. First, I think there will be political pressure to save a large parcel of that land for a memorial or some other park-like feature that will lower the overall office density of Lower Manhattan. Second, I'm not sure the market demand existed for large, high-rise office buildings�super skyscrapers like the twin towers�even before the attacks. While some huge buildings like the Sears tower in Chicago or the Bank of China building in Hong Kong are being built, many of these projects have as much to do with ego or national pride as they do economics. American cities have been decentralizing, and New York City has not been immune to these pressures. That's one reason we have seen the growth of cities such as Jersey City across the river from Manhattan. A strong market will create large buildings, but not of the scale and scope of the World Trade Center. If the World Trade Center is rebuilt at the same scale, it will be for political reasons, not economic ones.

Interestingly, Reis.com, a real-estate research firm in New York, is forecasting replaced office space in the World Trade Center area closer to 5 million square feet, about half the scale of the original towers. Note that this is still the equivalent of building the entire Nashville CBD in Lower Manhattan.

Reason: What will happen to the unmet demand?

Staley: A big chunk of it will go somewhere else: northern New Jersey, Queens, Brooklyn, and Long Island. In fact, this is already happening. American Express and Lehman Brothers have already negotiated deals in New Jersey. Lehman Brothers is converting its back office space in New Jersey into a head office. Fiduciary Trust, a company located on the top floors of the south tower, is setting up office in New Jersey as well. Group Coface, an insurance and exporting business, is working out of offices in New Haven, Connecticut. It will be up to those cities to create the kind of economic environment that will keep those businesses. It's not just out-of-state markets that benefit. Brooklyn and Queens will likely see increased demand for their office space, at least in the short run. And many, many more employees are telecommuting. These could have profound implications for commercial office development trends. I think we will see a further figurative flattening of the New York City skyline.

Reason: What other factors will influence commercial office trends in the New York City region?

Staley: One of the more important effects of the attacks is how they have led many people to re-evaluate their lifestyles and habits. Many are reassessing whether they want to spend hours commuting each day, when that time could be minutes—sometimes hours�spent with their children and spouses. Financial services and consulting businesses, in particular, could be ripe for increased telecommuting or dramatically downsized daily office routines and operations.

Many others, particularly those directly affected by the tragedy or working in similar environments, may re-evaluate whether they want to work somewhere that could be such an obvious target. They won't necessarily give up an urban work environment, but they may seek offices and workplaces that are less visible and more consistent with the overall skyline.

Samuel Staley is director of urban and land use policy at Reason Foundation and co-editor of the book "Smarter Growth: Market-Based Strategies for Land-Use Planning in the 21st Century."

Samuel Staley is Research Fellow





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