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In just 10 years, the downtown commercial real estate marketrunning from south of Canal Street to the Battery, river to river-has gone full circle, from vibrancy to desolation and now back to vibrancy. The saga of office-to-residential conversions in the financial district tells the story.
Back in 1994-95, observers hailed the conversion of vacant commercial space into apartments, spurred by city tax incentives, as a sign that the neighborhood was coming back. Today, commercial rents have risen so steeply that some residential conversion plans have reportedly been shelved. Instead, owners are upgrading their property for new commercial tenants.
Not only that, there's even serious talk about a retail revival on lower Broadway.
Vacancy rates plummet
Office vacancy rates, according to Cushman &Wakefield Inc., have plunged to just 9.2% today from 30% to 40% in the mid-1990s. Infact, available Class A space is virtually nonexistent. And rents are up to the $40s for Class A and around $30 for Class B. Of course, in TriBeCa, older commercial space continues to be transformed into luxury housing.
The problem is that much of the recent leasing activity in the financial district is coming from dot-com start-ups looking for relatively small spaces of under 30,000 square feet.
That's a pretty shaky foundation for a major business district.
Landlords and developers have to decide whether to rent out space to start-up companies that could collapse tomorrow and whether to go ahead with planned residential conversions. They are also pondering at what point it will be feasible to build again.
Part of the reason that downtown leasing has exploded in the last year is a flight from the...