Downtown Lease Market Picking Up, Brokers Say
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Even as architect David Childs released the latest designs yesterday for the Freedom Tower, questions linger about whether any business will want to rent space there five or six years from now, when the building is completed.
Commercial real estate brokers say that if yesterday’s event were a ribbon-cutting, instead of a design showcase, the Freedom Tower could fill up relatively fast with tenants at market rates. The downtown office space market is hot. Unfortunately, they say, the 2.6 million square feet of office space will not come online until at least 2011, and no one will dare to predict what the typically unpredictable market for commercial space in New York will be like at that time.
The potential of the Freedom Tower to be a financial liability was detailed during negotiations this spring between the Port Authority, which owns the former World Trade Center site, developer Larry Silverstein, the state, and the city. It was widely accepted that the tower would be the least desirable of the three office towers planned for the site. Critics said it was a likely terrorist target, too far from transportation, and that the two office buildings planned to the east along Church Street had the bigger floor plates that are more suited for today’s demand.
If the three buildings roll out at the same time around 2011 or 2012, and that roll out coincides with a down market for commercial space, experts say they could sit as empty steel husks for some time.
As part of the negotiations this spring, the task of leasing the Freedom Tower was transferred from Mr. Silverstein to the Port Authority. Governor Pataki agreed to find government tenants for 1 million square feet of space in the Freedom Tower, or roughly 30 of the building’s 69 floors. The concession is seen as a way to limit the Port Authority’s risk in having to fill up the building.
Still, commercial brokers said that a recent acceleration of downtown leases bodes well for the Freedom Tower’s prospects.
An executive director with Cushman and Wakefield, Andrew Peretz, said the companies now signing leases downtown are “not bottom-fishers or government agencies.”
“I don’t know how much longer there will be a perception of a white elephant,” Mr. Peretz said. “Downtown is hot right now.”
“But who knows what five, six years will bring?” he added.
Recently, 7 World Trade Center, Mr. Silverstein’s building that is just steps from the Freedom Tower site and the only office tower rebuilt that was totally destroyed in the terrorist attacks, signed an agreement with Moody’s to rent 600,000 square feet of space. Silverstein Properties began marketing the building last fall, and now 7 World Trade Center has commitments for about 50% of its 1.7 million square feet.
World Financial Center, the large office complex owned by Brookfield Properties across West Street from ground zero, has had several recent lease signings and is said to have several big-name signings in the pipeline. Brokers say that it is basically full.
The chairman of GVA Williams, a commercial brokerage, Michael Cohen, said that in today’s market, more than 8 million square feet of office space planned for the former World Trade Center site would be a welcome addition.
“New York is rapidly running out of class A office space. Downtown is undergoing a renaissance. The complex being built down there will lease,” Mr. Cohen said.
Some real estate experts have questioned whether a white-shoe law firm, or a major corporate tenant, will want to share space in the Freedom Tower with public sector tenants, who could include the FBI, Homeland Security, or the U.S. Customs House.
Mr. Cohen said that the presence of federal neighbors is unlikely to affect demand for Freedom Tower space.
“The World Trade Center used to have millions of square feet of government offices, and they happily coexisted with Fortune 500 companies and nobody cared,” Mr. Cohen said.
“There is no predisposition against cohabitating with the government, providing it is not the department of parole,” he said.
Construction on the foundations of the Freedom Tower started in April 2006 and some changes are now visible from above. The building is estimated to cost $1.7 billion.
Mr. Pataki said yesterday that the new designs represent an improvement.
“We were all concerned that security issues involving the base could have resulted in something that didn’t have the grandeur and the flowing sense you need to have in something as large as the Freedom Tower,” Mr. Pataki said. “But David managed to accomplish that in a way that I think is just spectacular.”