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January 7, 2015, Article

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Business Week: World Trade Center Towers Fill Slowly in Shift to Tech

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When lower Manhattan’s new World Trade Center was conceived a decade ago, nobody had in mind a Silicon Valley in the sky.

Financial companies, which dominated the original twin towers, are scarce among tenants who have committed to space at the complex’s glass-and-steel skyscrapers. Instead, the majority of deals done since magazine publisher Conde Nast agreed to anchor 1 World Trade Center in 2011 have come from technology, media and advertising.

“People were expecting financial companies to be a substantial portion of the leased space” in the new towers, said Christopher Jones, vice president of research at New York’s Regional Plan Association. “I don’t think many people would have thought that it would be virtually nothing.”

The November opening of 1 World Trade Center, the 1,776-foot (541-meter) skyscraper built at the site of Sept. 11, 2001, terrorist attacks, marked a milestone in a lower Manhattan renaissance that’s been fueled by a changing mix of inhabitants beyond the area’s finance-industry roots. That shift is presenting a challenge: The creative companies dominating New York’s office market tend to be comparatively small, leaving landlords to fill their monumental buildings floor-by-floor.

Almost 2 million square feet (186,000 square meters) are unrented at 1 and 4 World Trade Center, the first buildings to open at Ground Zero. Agreements were signed for about 340,000 square feet in 2014, with no single lease larger than the 106,000 square feet that digital-advertising company MediaMath Inc. took in July at tower 4, according to CoStar Group Inc. (CSGP:US), a Washington-based research firm that tracks office leasing.

At that pace, the towers wouldn’t reach 95 percent occupancy until 2019, almost two decades after the 9/11 attacks leveled the first twin towers.

Leasing Momentum

Few people in the real estate industry doubt that the towers will be filled. The newness of the buildings and the market-leading rents they’re seeking have contributed to the slow pace of leasing, said Mary Ann Tighe, chief executive officer of CBRE Group Inc.’s New York/tri-state region.

“It takes a while to fill these buildings,” said Tighe, who is co-head of the leasing team at Larry Silverstein’s 4 World Trade Center and 3 World Trade Center, which is still under construction. “I actually feel we’ve begun to develop momentum, and momentum is always the secret to leasing.”

So far, about 3.3 million square feet have been rented at 1 and 4 World Trade Center, including Conde Nast’s 1.2 million square feet, according to CoStar. The banking and insurance industries, which occupied almost 80 percent of the old World Trade Center’s leased space, make up 1.3 percent of current tenants, according to CoStar.

Media, Tech

Media, advertising, computer-technology and communications companies have taken almost 33 percent of the space rented so far, compared with only about 3 percent at the old World Trade Center, the research firm’s data show. About 40 percent is from government tenants that agreed to lease space in the middle of the last decade to help jumpstart construction of the towers. The remainder came from business services, real estate and other fields.

For High 5 (HYS:US) Games, a developer of casino and social media games, 1 World Trade Center was “complementary to Silicon Valley on the West Coast,” said Patrick Benson, vice president of marketing. The firm, currently based at 770 Broadway in the East Village, took 87,663 square feet on floors 58 and 59.

“It provided everything that we needed,” including state-of-the-art technology, a “blank slate” of column-free offices, and room for expansion, Benson said.

‘Much Hipper’

Interest from tenants like High 5, which usually have younger workers, is a reflection of how downtown has become “a much hipper area,” said Marc Shapses, executive managing director with Savills Studley Inc.

The days of financial companies being dominant downtown “are gone” after many moved to Midtown, he said. “And it’s a more conservative move now for those companies to just stay put, to renew their leases” at their current headquarters as a cost-saving move.

Banks including Citigroup Inc. (C:US), JPMorgan Chase & Co. (JPM:US) and UBS Group AG (UBSG) have considered and rejected going to the trade center site.

The few financial tenants at the new skyscrapers have come from outside the industry’s mainstream. The biggest is investment-research company Morningstar Inc., which took a 30,000-square-foot floor at 4 World Trade Center in September. IEX Group, the stock-selling startup that was the subject of Michael Lewis’s book “Flash Boys,” agreed to lease 13,000 square feet in that building in November.

At 1 World Trade Center, BMB Group, C12 Capital Management and Incandescent Technologies each took spaces smaller than 3,500 square feet.

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