Lower Manhattan Values Are Vanishing

Savills Studley Insights
April 8, 2014
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Less Available Space...

The reduction of 3.5 million square feet of Class B space stands in marked contrast to Manhattan’s other submarkets (Figure 1); not only is the contraction in the amount of available space significantly greater in the Downtown submarket on an absolute basis, it’s also the most sizable in terms of the change in the availability rate, which incorporates the impact of changes in existing supply.

(Click or tap images to enlarge)

Chart: New York City Submarket Class B Availalable Space and Availability Rates

The decline in available Downtown space has been an ongoing event. While the terrorist events of September 11, 2001 demolished a substantial amount of office inventory that is being rebuilt, another reason the stock of existing office space in Lower Manhattan has declined is due to the substantial conversion of office space into residential condominiums. While earlier conversions were buoyed by the 421-g tax incentive program, and then by the Liberty Bond program—both of which have since expired—increased demand for residential housing stock has continued over the last several years, fueled by robust foreign investment.

In addition to the decline in total inventory (Figure 2), leasing activity has accelerated over the last several years. Class B lease turnover, the amount of space leased as a percentage of the overall building stock, accelerated in Downtown during 2013—especially relative to Downtown Class A space, leaving fewer better-located Class B spaces from which to choose among (Figure 3). Notably, Downtown was the only submarket below 59th Street to show positive direct net absorption of Class B space during 2013.

Chart: Downtown New York City Office Inventory, By Year and Class 2000 through 2014
Chart: Downtown New York City Lease Activity as a Percentage of Total Inventory 2008 through 2014

...But Still Attractive Rents

Despite the uptick in activity and the reduction in availability, Lower Manhattan space represents one of the best value propositions in the Manhattan market. As shown in Figure 4, Class B rents in the Downtown submarket as of Q1 2014 are not only the lowest in all of Manhattan, but also are the lowest as a percentage of Class A rents (66.2%). Moreover, Downtown Class A asking rents are substantially lower than Class A rents in the Midtown South and Midtown submarkets.

Chart: Manhattan Sub-Market Rents by Class
Chart: Downtown New York City Asking Rents

While the differential in asking rents between Class A and Class B space in Downtown has risen from $8.42 in Q1 2010 to $20.09 by the end of Q1 2014 (an increase of almost 140%), the increase in the spread largely reflects the increase in asking rents overall. Specifically, the spread between Class A and Class B space in the Downtown area, as with most other submarkets, has increased as the underlying asking rents on Class A space has increased (Figure 5), suggesting that despite the increase in the spread between Class A and Class B rents, space in Downtown still remains an excellent value, even after accounting for the rise in overall asking rents by class.

In recent quarters, the Downtown submarket has drawn a notable roster of tenants—particularly as the area has shed its financial services image to attract a growing number of technology, information and media companies, following on the heels of an early relocation announcement from Condé Nast (who signed a 1.2 million square foot 25-year lease in 2011 that will take them from 4 Times Square to 1 World Trade Center at the end of this year.) More recently, the News Corp.’s Harper Collins division announced its departure from 10 East 53rd Street to 195 Broadway (the company is taking 183,000 square feet for 15 years) while GroupM announced a move from 498 Seventh Avenue to 3 World Trade Center, where it will take 516,000 square feet in 2017 for 20 years.

Lower Manhattan Signed Leases Q4 2013 Through Q1 2014 - 35,000 Square Feet and Over

Other publishing and information stalwarts in Lower Manhattan include the Daily News, American Media, Nielsen, Thomson Information Services and Omnicom, but increasingly, more “traditional” users of office space have also embraced Lower Manhattan. Within the last six months, law firm Jones Day signed a 20-year, 330,000 square foot lease at Brookfield Place’s 250 Vesey Street, while Lester Schwab Katz & Dwyer, LLP remained Downtown and took 39,000 square feet on the 26th and 27th floors of 100 Wall Street. Non-profits have also been active downtown, including Concepts of Independence, an advocacy program for chronically ill and physically-disabled New Yorkers, who signed a 15,000 square foot lease at 120 Wall Street (home to the American Foundation for AIDS research and National Urban League) as have tenants looking for large blocks of contiguous space—such as the Institute for Culinary Education, who took 71,000 square feet at Brookfield’s 225 Liberty Street. Currently, there are only 19 contiguous blocks of space larger than 100,000 square feet on the market in Downtown that comprise 8.3 million square feet, only five of which are Class B spaces. In contrast, in December 2012, there were 27 blocks totaling 10.0 million square feet. (A current list of large contiguous blocks of Downtown space is shown in Appendix III.)

In addition to significantly less expensive office rents than other submarkets, Lower Manhattan offers a multitude of transportation options, particularly for workers commuting from Brooklyn. (A 2012 study from New York University’s Rudin Center puts the number of Brooklyn residents commuting to Manhattan at more than 350,000.) When completed, the World Trade Center Transportation Hub’s concourse will offer commuters access to 11 different subway lines in addition to the Port Authority Trans-Hudson (PATH) rail system and Battery Park City Ferry Terminal and will “represent the most integrated network of underground pedestrian connections in New York City.”

Expired Incentives Are Back

Many of the early lease signers in Downtown Manhattan received state-legislated economic incentives, in many cases, totaling billions of dollars. The majority of these incentives had expired in June 2013, but with the State’s new budget for fiscal year 2014-2015 (which began on April 1st, 2014) many of the incentives for Lower Manhattan were retroactively reinstated, potentially making the Downtown submarket an even better option for cost-conscious tenants.

Currently Active Programs in Lower Manhattan

Name: World Trade Center Job Creation & Retention Program

Status: Assistance must be requested by December 31, 2015

Administered By: Empire State Development and New York City Economic Development Corporation

The World Trade Center Job Creation & Retention Program encourages companies to commit to creating a minimum of 75new jobs in Lower Manhattan or retaining at least 200 Lower Manhattan jobs. The program offers discretionary HUD-funded grants that are based on the number of new or retained full-time jobs, the project’s fiscal and economic impact and an assessment of the need for grant funds to move the project ahead in Lower Manhattan.


  • Companies that attract at least 200 or project creating at least 75 full-time permanent jobs in Lower Manhattan (south of Canal Street) that are also new to New York City within four years (half of the jobs are to be created within two years).
  • Companies that have not yet made a commitment to locate the new jobs in Lower Manhattan.
  • Companies that commit to maintaining the new jobs in Lower Manhattan for at least 10 years. (Failure to do so during the commitment term will subject the company to a recapture of grant funds.)

Name: Lower Manhattan Commercial Revitalization Program

Status: Real Estate Tax Abatement: Active and Extended Commercial Rent Tax Special Reduction: Had Expired 6/30/13, Now Extended

Administered By: New York City Department of Finance

The Commercial Revitalization Program (CRP) was developed with the goal of rehabilitating older building stock in Lower Manhattan. The New York City Department of Finance provides benefits via two tax incentives: a $2.50 Real Estate Tax Abatement and a Commercial Rent Tax Special Reduction.

These benefits apply to nonresidential or mixed use premises located in designated abatement zones that were built before 1975. Applicants are also required to make certain minimum expenditures to improve the eligible premises. For both portions of CRP, the following guidelines apply:

  • Tenants must submit their application within 180 days of lease commencement.
  • Tenants must relocate from within Manhattan to be eligible. Relocations from outer boroughs are ineligible.
  • Tenants can only receive benefits under CRP once, even if they move to a new location. However, the benefit may be continued or increased if additional space is leased.
  • Subleases are not eligible.
  • Benefits taper off in the last two years of the benefit period, and are reduced to 2/3 of the benefit in the second-last year, and 1/3 in the last year.

Real Estate Tax Abatement

Under CRP, the Department of Finance offers a $2.50 per square foot real estate tax abatement for up to five years for commercial tenants that locate in non-residential pre-1975 buildings in Lower Manhattan and make improvements to their space. Leases must commence prior to March 31, 2016 (extended from March 31, 2014). The premises must be located south of Murray Street and the Brooklyn Bridge, west of South Street and east of West Street.


  • Leases may be 3, 5, or 10 years, depending on the number of employees. Firm with fewer than 125 employees may have 3- or 5-year leases (or longer) and will receive the benefit for three to five years, depending on the length of lease. Firms employing over 125 people must have ten-year leases, and will receive the benefit for five years.
  • Tenants receive the benefit as a pass-through from their landlord and must jointly apply for the tax abatement with their landlord.
  • Expenditures required are based on the number of employees and length of lease, and must be a minimum of $5, $10, or $35 dollars per square foot of net leasable space.
  • Expenditures must be documented and submitted to the Department of Finance.

(For a list of buildings that qualify for the real estate tax abatement portion of CRP, please see Appendix I.)

Commercial Rent Tax Special Reduction: The CRT portion of CRP offers an exemption on the commercial rent tax, a tax paid by retailers and commercial businesses with an annual rent of over $200,000 per year. (Non-profit companies are not eligible because they do not pay commercial rent tax.)

The tenant must be located in a non-residential building south of Canal Street, and leases must commence prior to June 30, 2015 (extended from June 30, 2013). Qualifying businesses stand to receive an exemption for up to five years on the tax, which is 6% of the base rent.

Name: World Trade Center Rent Reduction Program

Status: Applications have been approved for the entire 750,000 square foot allocation for 7 World Trade Center and the 750,000 square foot allocation for the World Trade Center. If an additional allocation becomes available, new applications will be considered.

Administered By: Empire State Development

The World Trade Center Rent Reduction Program provides incentives for the first 750,000 square feet of commercial office space leased at the buildings to be developed at the World Trade Center site and at 7 World Trade Center. The program provides a $5.00 per square foot reduction of rent payments for commercial office leases at the World Trade Center.


  • Commercial office tenants only.
  • Minimum lease term of five years.
  • Lease commencement must be between December 15, 2005 and December 31, 2016.

Name: Lower Manhattan Relocation Employment Assistance Program

Status: Had Expired 6/30/13, Now Extended

Administered By: New York City Department of Finance

The Lower Manhattan Relocation Employment Assistance Program provides a $3,000 tax credit per employee, per year to businesses that relocate to Lower Manhattan from outside of the five boroughs. The credit may be taken against the NYC General Corporation Tax, the Banking Corporation Tax, the Unincorporated Business Tax, and/or the Utility Tax.


  • Companies must have been in business for at least 24 months before relocating or expanding to Lower Manhattan.
  • Two types of businesses qualify: Eligible Businesses (EB)—companies that are new to New York City and Special Eligible Businesses (SEB)—companies that already have a Manhattan presence but are moving employees from outside of the five boroughs to Lower Manhattan.
  • EB firms must move at least one employee to Lower Manhattan from offices outside of New York City. SEB firms must increase their payroll in New York City by 25% or 250 employees.
  • Companies must relocate to a non-residential building that has been improved by construction or renovation, or must sign a lease of at least three years and spend $25 per square foot on improving their space themselves. (Retail businesses and hotels are not eligible.)
  • Eligible premises must satisfy either the Property Criteria or the Premises Criteria below:

Property Criteria: Eligible premises must be located in property that is one of the following:

  • Eligible for the Industrial and Commercial Incentive Program (which sunset in 2008);
  • Leased from the New York City Industrial Development Agency;
  • Owned by the City; or
  • Leased from the Port Authority or New York State Urban Development Corporation.

Premises Criteria: If leased, the lease term must be at least three years after the lease start date or the date of relocation, whichever is later.Applications for the program were extended to June 30, 2015 from June 30, 2013.

Lower Manhattan Relocation Employment Assistance Program Map

Name: Lower Manhattan Energy Program (LMEP)

Status: Had Expired 6/30/13, Now Extended

Administered By: NYC Department of Small Business Services (SBS)

The LMEP program can reduce energy costs by up to 45% for 12 years for eligible building owners and their commercial tenants. Commercial tenants do not need to submit an application for the LMEP; the credit should be passed through from their landlord automatically.

Buildings located south of Murray and Frankfort Streets are eligible for LMEP if renovations in excess of 30% of the property’s assessed value have been made, and the building has been approved by the Industrial & Commercial Abatement Program (ICAP) or the New York City Industrial Development Agency (IDA).

The building owner or developer must submit an application to SBS before a building permit is issued for the construction or renovation.


  • Qualified building owners and their commercial office tenants (non-retail).
  • Buildings currently receiving this benefit are unaffected by the legislation or the program’s expiration date.

The program was extended to June 30, 2015 from June 30, 2013.

Name: Liberty Zone Sales and Use Tax Exemption / Lower Manhattan State and Local Sales Tax Exemption

Status: Had Partially Expired, Now Extended

Administered By: NYC Department of Taxation and Finance

The program provides tax exemptions from state and local sales and use taxes imposed in New York City, including the additional tax imposed by the state within the Metropolitan Commuter Transportation District (MCTD) on expenditures for build-out costs for eligible leases. (Build-out costs are defined as property purchased by tenant or landlord for improving commercial premises and property sold to a contractor for use in improving commercial premises, including the service of installing said property.)

The exemption is available for eligible purchases made and costs incurred during the first year of the eligible lease; moreover, all eligible items must be installed or delivered within 90 days of the end of the first year of the lease.


  • In the World Trade Center area, the World Financial Center and Battery Park City area, eligible leases with a minimum term of 10 years must commence on or before December 1, 2018 (extended from September 1, 2015). The tenant (entity on the lease) must be the one that is making improvements or using the property and applying for the exemptions. State and local sales tax exemptions are available on expenditures for the build-out, furnishing, and equipping of qualified commercial office space for tenants signing new or renewal leases within the above areas. (Build-out costs are defined as property purchased by tenant or landlord for improving commercial premises; property sold to a contractor for use in improving commercial premises; and installing property.)
  • In Lower Manhattan south of City Hall (excepting the areas above) eligible leases with a minimum term of 10 years must commence no later than December 1, 2016 (extended from September 1, 2013.) Sales and use tax exemptions are available on build-out costs only (and not furniture and equipment).
  • Geographic areas are further defined here: http://www.tax.ny.gov/pdf/memos/sales/m05_12s.pdf

Expired Programs in Lower Manhattan

Name: Hire + Expand in Lower Manhattan Competition

Status: Applications were due July 15, 2013. No extension.

Administered By: New York City Economic Development Corporation

The “Take the H.E.L.M.” competition offered cash prizes to the highest-caliber companies that chose to locate and grow their businesses in Lower Manhattan by targeting Startups, Creative Services, Technology, and national and international companies opening their first offices in New York (“New” New Yorkers).


  • Applicants must have planned to open a new office or expand in Lower Manhattan south of Chambers Street and must also have entered into a new lease, sublease or license agreement of at least one year between March 15, 2013 and March 14, 2014.

While other citywide incentive programs for areas not exclusive to Downtown Manhattan have also been extended (such as the New York City Industrial and Commercial Abatement Program), we suspect that we are at a tipping point for the Lower Manhattan market office market. With Downtown space at an attractive price point (particularly in comparison to other prewar office stock in Midtown South), a multitude of desirable transportation options, and a growing list of tenants from diverse industries, we envision further increases in Class B Downtown asking rents in the months ahead.


In just the span of a few years, the amount of available Class B office space in Downtown Manhattan has fallen by 45%. Whereas there was more than 7.8 million square feet of available Class B Downtown space at the end of Q1 2011, just three years later, only 4.3 million square feet of available space remain. In contrast, the supply of available Class A Downtown space has grown from 4.4 million square feet to 8.7 million square feet over the same time period; even excluding the 2.4 million square feet of available space from 1 and 4 World Trade Center, the growth in Class A space still represents the addition of 1.9 million square feet—an increase of 43% since Q1 2011.

Reduced availability—and potential upward pressure on asking rents—will likely characterize the market for Class B space in Lower Manhattan, especially as the recently-announced renewal of several financial incentives for commercial space further increases the attractiveness for tenants considering a move or lease renewal from a cost perspective. While pre-war, higher-quality Class B office space that traded at $30/square foot last year now starts at $40/square foot (in contrast to Class A space, where rents now range from $45-$60/square foot and new “trophy” space has asking rents in the $65-$80/square foot range), the entire area still represents one of the best values in the market today.

Appendix I: Select Downtown Office Buildings Converted (or in Process of Conversion) to Residential Units

Appendix II: Commercial Revitalization Program Eligible Buildings

Appendix III: Currently Available Blocks of Contiguous Space in Lower Manhattan Over 100,000 Square Feet