7 World Trade Center
Stan Honda  /  AFP - Getty Images file
The new 7 World Trade Center, right, stands next to the World Trade Center site in New York City. It is perhaps the most obvious symbol of the resurgence of the lower part of Manhattan and its shifting demographics.
By Roland Jones Business news editor
msnbc.com
updated 9/11/2006 1:13:14 PM ET 2006-09-11T17:13:14

It’s a sign of the resurgence of Lower Manhattan that few would have bet on.

Earlier this summer Tiffany & Co. said it plans to bring its famous blue boxes to the immediate vicinity of the New York Stock Exchange. The world-famous jewelry company will open a new store at 37 Wall Street in the fall of 2007. The draw: A boom in commercial rentals and a horde of new, high-end residential properties and the wealthy shoppers that usually go with them.

It has been five years since the terrorist attacks of Sept. 11, 2001, laid waste to the World Trade Center, but today Ground Zero remains little more than an empty hole, its reconstruction stalled by lingering negotiations between competing parties, including the Port Authority, developer Larry Silverstein and New York City.

But while the sluggish pace of redevelopment of the World Trade Center site has dominated the headlines, the surrounding district of Lower Manhattan — roughly defined as the area below Chambers Street flanked by the East and Hudson Rivers — is experiencing a residential and commercial real estate boom.

Tiffany is not the only company looking to cash in on that trend. BMW and luxury retailers Hermes and Hickey Freeman have all opened or announced plans to open retail stores in New York’s financial district in recent months.

“With all the competing pressures trying to influence the redevelopment of the World Trade Center site, I think its renewal is going to be more complex and lengthy because for many people it is a sacred place,” said Mitchell L. Moss, the Henry Hart Rice Professor of Urban Policy and Planning at the New York University’s Robert F. Wagner Graduate School of Public Service.

“What’s striking about Lower Manhattan is the area around the World Trade Center site,” Mitchell added. “It has been going through a remarkable transformation ever since September 2001. We are seeing new investment in schools, parks and housing, and the area is emerging as one of the great new neighborhoods of New York City.”

A slice of real estate known for years as the city’s center of business and government and the world’s center for investments and banking, Lower Manhattan slipped from third to fourth place in the rankings of biggest U.S. central business districts in the aftermath of the Sept. 11 attacks, as the destruction of the World Trade Center took away millions of square feet of office space.

Today, Lower Manhattan is the fastest-growing residential neighborhood in Manhattan, with new apartments being built in the buildings of former Wall Street residents like JP Morgan and Goldman Sachs. At the same time, surging rents in Midtown and other parts of New York City are driving an eclectic group of businesses to set up residence in the once financially-focused neighborhood.

The growth in residential property has its roots in the 1990s when, faced with the exodus of financial services companies from the Lower Manhattan district for Midtown and New Jersey, New York City’s government put in place a series of incentives to encourage developers to convert commercial spaces into residential properties out of concern that occupancy rates in the area would tumble.

Those incentives have now borne fruit. In the past five years housing stock in Lower Manhattan has grown by 38 percent, according to the Downtown Alliance, a business advocacy group for the Lower Manhattan area. At least six new residential buildings are slated to open in the next several months — attracting an expected 8,200 new residents to Lower Manhattan.

A lack of available space and soaring rents in the tight Midtown market, where in the last few years commercial rents have risen above $100 a square foot a year, are driving a commercial real estate boom as an increasing number of businesses consider locating in Lower Manhattan.

Several high-profile tenants moving their office space to the downtown area also have spurred interest in Lower Manhattan. Goldman Sachs is building a new, 43-floor headquarters within blocks of where the World Trade Center once stood. And Morgan Stanley recently signed a lease to rent additional space at 1 New York Plaza near Battery Park.

“As long as office space is less expensive than Midtown people will move to lower Manhattan for business, and there’s remarkable growth in housing,” said Moss. “I think Lower Manhattan is going to be one of the most exciting parts of New York City over the next five years because it will have the benefits of a rebuilt infrastructure and housing, and also the great waterfront access no other area of the city has.”

Before the Sept. 11 attacks, the office vacancy rate in Lower Manhattan was just 7.7 percent, according to data from commercial real estate firm Colliers ABR. Since topping out in August 2002 at 15.2 percent, it has fallen steadily to its current level of 11.4 percent.

“The commercial real estate space is tightening up a lot,” said Robert Sammons, research director at Colliers ABR. Moody’s Investor Service recently signed a lease for some 600,000 square feet of developer Larry Silverstein’s 7 World Trade Center — a building that was rebuilt on the site of one that collapsed on Sept. 11. The Moody’s move will likely pull the area’s office vacancy rate below 10 percent for the first time since the terrorist attacks.

“The 10 percent mark is the magic number for most people — it shows the market is tight. Many markets would love to have that number. If you compare that with other markets, the vacancy rate in Chicago is 17.1, while in Atlanta it’s 14.5 percent,” Sammons said.

Growth in commercial real estate is the latest stage of growth in the recovery of Lower Manhattan, says Eric Deutsch, president of the Downtown Alliance. More importantly, there is diversity in the types of businesses moving to the area.

“So now we are going from a recovery to a fully fledged expansion in Lower Manhattan,” said Deutsch. “The demand for commercial real estate has increased dramatically. We are seeing both large and smaller firms relocate to Lower Manhattan. The businesses are talking with their feet. They are coming to the area and signing 10, 15 or 20-year commitments to come down here.”

Perhaps the most obvious symbol of both the resurgence of the burgeoning rebirth of the southernmost part of Manhattan and its shifting demographics stands across Vesey Street to the north of the World Trade Center site.

The $700 million 7 World Trade Center replaces a structure erected in 1987, which collapsed when falling debris from the Twin Towers ignited fires that weakened its structure. It was the last building to fall on Sept. 11, 2001, and nearly five years later it was the first of the complex to be reopened.

The steel-and-glass tower includes 1.7 million square feet of office space and 42 tenant floors that house businesses including American Express Financial Services, magazine publisher Mansueto Ventures, law firm Darby & Darby and the New York Academy of Sciences.

“The building is complete and tenants are in there now — I think that surprises a lot of people,” said Greg Smith, chief creative officer of the Via Group, a marketing agency that created the advertising campaign for the building, which opened for business in May.

But Smith concedes that finding tenants has been a challenge. The problem, he says, is that after Sept. 11 and the flight of the financial community, businesses doubted the economic vitality of downtown Manhattan. The challenge was to attract a more eclectic selection of tenants for the new building, he said.

“Prior to 9/11 this was a neighborhood where people just worked — it was the classic downtown financial district,” said Smith. “But as more companies and retailers move here I think people will become more bullish. We’re about 60 percent filled now, and I’m pretty optimistic the building will be up to full occupancy in the next year or so.”

Downtown Manhattan now has an opportunity to create a new vision, said Smith.

“This is the first time the city has had to reinvent one of its major areas, albeit for tragic reasons, and I think that holds a lot of promise,” Smith said. “I think downtown Manhattan is going to become much more residential. People who work in a city also want to live there, and older cities like New York are competing with new, younger cities that have all the amenities, but less of the hassles. So this is going to be an interesting economic development story.”

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