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New York financial district risks permanent exodus

New York's financial district is in danger of permanently losing many of the companies that called the downtown area around Wall Street home before the destruction of the World Trade Center.

Nearly two-thirds of businesses displaced by the September 11 attacks on the twin towers moved a few miles north to midtown Manhattan, while only 9 per cent stayed downtown, according to new research published by real estate services firm Julien J Studley Inc.

Downtown New York, including Wall Street, has a storied history as an epicentre for the financial world. The attacks have left some wondering whether that tightly packed community can survive, with companies contemplating permanent moves to other parts of New York and neighbouring New Jersey.

With some buildings near the wreckage of the World Trade Center preparing to reopen over the next few weeks, it remains unclear just how many tenants will return -- and how quickly.

Companies worry about the emotional toll on their employees from having to walk to their offices past the still smouldering ruins of the World Trade Center, under which thousands still remain buried.

Transportation to the area remains in disarray, with subways and trains diverted from the area and drivers struggling with detours and limited parking. There are also lingering health concerns because the air is still often acrid.

Real estate brokers report that tenants from big downtown buildings, such as 1 Liberty Plaza, are exploring ways to get out of their leases and are looking at offices in other parts of the city.

Dow Jones & Co, the publisher of The Wall Street Journal, will abandon half its 300,000 square feet in the World Financial Center, which was in the shadow of the World Trade Center. It will move more than 400 staff permanently out of the financial district.

Lehman Bros Holdings Inc also has no immediate plans to return to the area as its office tower at No 3 World Financial Center was badly damaged by the World Trade Center collapse.

It has leased space on New Tork's Park Avenue, has bought a building near Times Square, and moved people to offices in Jersey City in New Jersey.

Even those such as asset management and insurer Zurich North America who say they intend to return to the area are hesitant. The company will delay sending its 600 employees back to downtown offices, even though the building will reopen shortly.

"We're planning on going back at some point in time, but we don't know at what point," spokeswoman Patricia Schnably said. "We're waiting for an appropriate time, when things are cleaned up to a point where it's an acceptable environment for people to work in."

It could take major financial incentives, including broad tax breaks, to lure many businesses back, real estate experts said. The New York Real Estate Board is spearheading efforts to negotiate such deals with local, state and federal governments.

The New York Stock Exchange's plans to demolish a Wall Street-area office building to make room for a new trading facility have been put on hold, as well. The NYSE will determine the time frame for a new building after the city's plans for rebuilding the destroyed and damaged area have been set, said its president William Johnston on Thursday.

Questions remain about whether American Express Co, Bank of New York Co Inc, Deutsche Bank AG, the Port Authority of New York and New Jersey and others will return all or most of their operations downtown.

Even the giant brokerage house Merrill Lynch, which said it remains committed to staying downtown with more than 3 million square feet of office space, will put on the market for sublease some 400,000 square feet it has in the World Financial Center.

"We're clearly on the downside of a cycle right now economically so you'll likely see a softening across the board," said Matthew Barlow, executive managing director for Studley. "The downtown softening will be a little softer and a little deeper."

Even though about 13.6 million square feet of space was destroyed by the attacks, the demand from displaced tenants for space in Manhattan might only amount to 8 million square feet, Studley estimated.

Downtown New York has seen tough times before, with vacancy rates in the 20 per cent to 25 per cent range in the early 1980s and early 1990s. Lease rates in the World Trade Center, for example, dipped to $20 to $25 a square foot before surging to about $50 a square foot a year ago, brokers said.

It is still unclear how much rents in the area have dropped since the attacks.

Once the cleanup moves further along -- it could take six months to a year -- companies might start to feel more comfortable about returning.

"When the site gets cleared and the infrastructure improves you won't have the same sort of visceral reactions that you're getting right now," said Barlow, from Studley.

Law firm Cleary Gottlieb, Steen & Hamilton is firmly committed to putting 1,000 people -- half its workforce -- back in their downtown offices soon, however, the firm will wait a while before doing so.

"A lot of us were there when it happened and we were there for the 1993 (World Trade Center) bombing, too," partner Michael Ryan said. "It's an emotional experience and it will be an emotional experience when we return."

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