So how much office space do we need downtown? Citigroup announced it was pulling 1,700 jobs out of downtown today, sending most to Jersey City, and a smaller number to Long Island City. Chase is also expected to ship more jobs from downtown as the Bank One merger is completed. Goldman Sachs will be consolidating most of its operations (currently spread over four major locations) into one building (and sending the spillover over across the river to a building nearing completion). And Larry Silverstein is building two new towers, which will add to 3-6% to the available inventory (that’s counting 7WTC and the Freedom Tower only), which currently stands a nearly 15% vacant. Unless a major new tenant relocation from outside the district (the best prospect for 7WTC right now is the SEC, a relocation that won’t positively impact the overall vacancy rate) happens in the next two years, we can forsee vacancy rates hitting 18-20%.
And what no one is discussing in detail is that much of what remains downtown in the financial services industry is highly susceptible to poaching. Two major factors impact this: security concerns (which mandates redundancy and/or distribution of support services) and the unwinding of leases and operations contracts. The huge investment in network infrastructure and space acquisition that occurred only 4-8 years ago was generally done at a premium, at the tail end of the hottest commerical real estate market in a generation. The subsequent falloff resulted in staff reductions and some fundamental changes in how the FIRE segment operates, niether of which has reversed itself, even though the markets have done tremedously over the past year. And the concomitant implosion of the telecom sector means that firms have the leverage to move just about anywhere and be competitive. Physical proximity was a premium as recently as five years ago. The rise of ECN’s (Instinet, et al), and their cutthroat margins means that a trading floor might be better located in a shed building in Omaha (capital of call centers, which means that there is a huge amount of cheap fiber underfoot) rather than an anonymous tower on Water Street. Analysis and trading desk support can be shipped to India. The local culture of the downtown district is programmatically highly insular and monoculture focused — since the markets don’t take a lunch break, you end up with bland, cloistered, buildings with huge floorplates. Street life is anemic. A train tunnel and 10 million square feet of office space aren’t going to change that. When you take a look at the type of office space that exists downtown, how it is used, the relative amount of cultural, housing and consumer space alloted, you end up with a profile not dissimilar to places none of use want to live — Tysons Corner, 287/87, etc. What’s good for commerical, speculative office space landlords is not good for the city. The typology is antithetical to what draws people to the city and keeps them paying for the privilege.
Setting aside this neo-socialist vision where representatives of the majority of the people, rather than the majority of the money, determine was is best for their shared space, I’ll retreat and kowtow to the the magical forces of the free market: show me the lease. I will be humbled and testify to the error of my thinking. Bring it.
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Citigroup to downtown: Drop dead.
So how much office space do we need downtown? Citigroup announced it was pulling 1,700 jobs out of downtown today, sending most to Jersey City, and a smaller number to Long Island City. Chase is also expected to ship more jobs from downtown as the Bank One merger is completed. Goldman Sachs will be consolidating most of its operations (currently spread over four major locations) into one building (and sending the spillover over across the river to a building nearing completion). And Larry Silverstein is building two new towers, which will add to 3-6% to the available inventory (that’s counting 7WTC and the Freedom Tower only), which currently stands a nearly 15% vacant. Unless a major new tenant relocation from outside the district (the best prospect for 7WTC right now is the SEC, a relocation that won’t positively impact the overall vacancy rate) happens in the next two years, we can forsee vacancy rates hitting 18-20%.
And what no one is discussing in detail is that much of what remains downtown in the financial services industry is highly susceptible to poaching. Two major factors impact this: security concerns (which mandates redundancy and/or distribution of support services) and the unwinding of leases and operations contracts. The huge investment in network infrastructure and space acquisition that occurred only 4-8 years ago was generally done at a premium, at the tail end of the hottest commerical real estate market in a generation. The subsequent falloff resulted in staff reductions and some fundamental changes in how the FIRE segment operates, niether of which has reversed itself, even though the markets have done tremedously over the past year. And the concomitant implosion of the telecom sector means that firms have the leverage to move just about anywhere and be competitive. Physical proximity was a premium as recently as five years ago. The rise of ECN’s (Instinet, et al), and their cutthroat margins means that a trading floor might be better located in a shed building in Omaha (capital of call centers, which means that there is a huge amount of cheap fiber underfoot) rather than an anonymous tower on Water Street. Analysis and trading desk support can be shipped to India. The local culture of the downtown district is programmatically highly insular and monoculture focused — since the markets don’t take a lunch break, you end up with bland, cloistered, buildings with huge floorplates. Street life is anemic. A train tunnel and 10 million square feet of office space aren’t going to change that. When you take a look at the type of office space that exists downtown, how it is used, the relative amount of cultural, housing and consumer space alloted, you end up with a profile not dissimilar to places none of use want to live — Tysons Corner, 287/87, etc. What’s good for commerical, speculative office space landlords is not good for the city. The typology is antithetical to what draws people to the city and keeps them paying for the privilege.
Setting aside this neo-socialist vision where representatives of the majority of the people, rather than the majority of the money, determine was is best for their shared space, I’ll retreat and kowtow to the the magical forces of the free market: show me the lease. I will be humbled and testify to the error of my thinking. Bring it.