One World Trade Center won a coveted honor this week. The 1,776-foot tower in Lower Manhattan was named the tallest in the U.S. by the Council on Tall Buildings and Urban Habitat, besting Chicago’s 1,451-foot Willis Tower. Prominent Chicagoans, most notably Mayor Rahm Emanuel, were naturally displeased with the decision, but there’s nowhere they can go to appeal it.
Yet the New York tower’s triumph has been tainted somewhat by the accompanying news that the 3 million-square-foot building, scheduled to open next year, remains 45 percent vacant. It isn’t the only building on the site with rental issues. The 2.3 million-square-foot 4 World Trade Center, which opens this week, is 40 percent unoccupied.
This has prompted at least one prominent real estate broker to suggest that the owners of these buildings have a problem. Michael Cohen, tri-state regional president of Colliers International, told Bloomberg News that there was an oversupply of pricey office space downtown, and he suggested that the owners of these superstructures may have to settle for lower rents than they are currently requesting. “At the end of the day, supply and demand will determine what that space trades for,” Cohen said.
Perhaps that’s wishful thinking from brokers who are seeking cut-rate deals for their clients at the World Trade Center. Traditional commercial real estate economics don’t really apply at the site—and they never have. The original World Trade Center was conceived in the 1960s by then-New York Governor Nelson Rockefeller as a neighborhood revitalization project rather than a strictly commercial one. At the time, the once vital Wall Street area was in sorry shape.
“New York’s financial district has changed very little in the last quarter century—in appearance,” Fortune wrote with poetic mournfulness in 1956. “Its cacographic towers; its peeling lunch joints; its meek little Morgan Bank looking like a fairly respectable Indianapolis branch office; its ubiquitous hardware shops glutted with sleazy pliers—all this familiar furniture looks almost exactly the way it looked 30 years ago, down to the lapel cut of the suits worn by passing bankers.”
The Twin Towers didn’t beautify the area much when they were completed in the 1970s by the Port Authority of New York and New Jersey. Architecture critics found them hideous. “There is a fascination with the towers’ ugliness,” the Washington Post declared in 1973. “Man’s tallest buildings to date defy their surroundings, man’s most wondrous, skyscraping community. The 110-story Brobdingnagian shafts stand with blunt, graceless arrogance on the western edge of Manhattan Island, seeming to tilt that wonder with overbearing size and hubris.”
Wall Street firms weren’t interested in inhabiting the Trade Center. Instead, the Port Authority had to fill the towers by renting space to dentists, artists, and government agencies. The Twin Towers were fully occupied with high-paying commercial tenants on the eve of 9/11, largely because the Port Authority hired an outside real estate agency to manage the buildings and lure tenants away from Midtown Manhattan with subsidized rents.
The same forces apply today. The World Trade Center isn’t being rebuilt purely to make money; the city, state, and nation want to see it rise again as a symbol of resilience. So once again, the owners of the various buildings have the luxury of offering rents in properties that developer Douglas Durst, who has teamed up with the Port Authority to build One World Trade Center, has described as “heavily subsidized.” Bloomberg News reports that Durst is asking $78 a square foot in the tower. The Real Deal says landlords are getting an average of $107 a square foot in their Madison Avenue properties, while those with Park Avenue office space are reaping $89.83. Of course, those are the kind of pricing differentials that eventually filled the old World Trade Center.
Durst and the Port Authority have already signed up a prestigious anchor tenant, Condé Nast, publisher of Vogue and the New Yorker. They also have commitments from the federal government and some Chinese firms. A company called Legends will operate the tower’s observatory in a 15-year-deal estimated by Bloomberg News to be worth $875 million. The Council on Tall Buildings decision will bolster the owners’ marketing campaign.
The owners are benefiting from some contextual factors as well. Lower Manhattan is no longer the seedy place that Fortune described half a century ago. And while architecture critics aren’t in love with One World Trade Center’s design, they haven’t treated it as scornfully as they did the original Twin Towers. The tower’s owners will probably announce more tenants before the building opens next year.
There’s no reason for them to accept low-ball offers. The law of supply and demand may govern the rest of the Manhattan real estate market. But the World Trade Center has its own set of rules.