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National Disaster Forces Firms Out of Lower Manhattan

In the wake of the recent terrorist attacks, corporations, developers and real estate brokers in the New York metropolitan area have been working overtime to meet demand for office and backup space. Some companies have been forced to move from downtown, while others are initiating the move on their own.

The types of office space in the highest demand right now have been relatively new, low-level office buildings with highly developed communication infrastructure and first-rate power systems. Currently, the tri-state area has ample supply, but this could dwindle over time. Historically, metropolitan areas have been able to tackle the over-population issue by building towards the sky. If companies do not want to go up, the only other alternative is out. This is what seems to be happening in downtown Manhattan.

On Oct. 8, Lehman Brothers (NYSE: LEH) made it official that it would sever ties with Brookfield Properties (NYSE: BPO) by moving out of the World Financial Center. Lehman agreed to purchase a recently constructed 32-story Manhattan office complex from Morgan Stanley (NYSE: MWD). This acquisition will allow approximately 5,000 Lehman employees to relocate from downtown to midtown.

Just the other day, Dow Jones & Co. (NYSE: DJ), the parent of The Wall Street Journal, announced that they plan on permanently relocating approximately 250 employees out of 1 World Financial Center, and into their existing offices in South Brunswick, New Jersey. This move will drastically reduce their floor space in the WFC from seven to three. Despite the tragedy, sources tell Stock Traders Press that Dow Jones planned the move before hand in an attempt to cut expenses.

Recent channel checks and exchanges with members of the real estate community indicate that many companies are actively pursuing relocation options. Two major catalysts include issues of geographic security and cost savings opportunities.

The commercial real estate cycle, from property surveys to reviewing and signing the lease, typically falls somewhere between 6-to-18 months, depending on the size of the firm. The duration of this cycle combined with the already low Midtown Manhattan vacancy rates, as shown in the accompanying chart, indicate that real estate activity in the New York metropolitan area should remain busy for the immediate future.—Staff Analysts

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