Tuesday's terrorist attacks took a bite out of the Big Apple: 24.5 million square feet of Class A office space is either permanently lost or temporarily unfit for occupancy.
Robert Bach, national director of market analysis for Grubb & Ellis, said that World Trade Center buildings 1,2,4,5,6 and 7 were either destroyed or significantly damaged, removing 13.4 million square feet from the Manhattan office building inventory. As of late July, 97 percent of that space was occupied.
The total immediate loss is roughly 15 million square feet of property in Lower Manhattan, according to Jones Lang LaSalle. Another 2.3 million square feet has been damaged or declared structurally unsound from fires, falling debris and building collapses.
Meanwhile, more than 10.7 million square feet of property sustained damage. About 5 million square feet of that will be taken out of the market for at least one year for extensive repairs and reconstruction. The remaining 5.7 million square feet should be ready for occupancy in less than 12 months.
Yet Bach expects New Yorkers will pull together to ensure stable rents, prevent prices from spiraling out of control and provide office space for displaced firms.
New York office rents had been declining slightly, and the events of this week should shore up those rates, Bach said.
"This will arrest the decline, but I don't think owners will be doing any gouging," Bach said. "New Yorkers are all in this together, and it would surprise me to see rents go up significantly."
Companies in the Silicon Alley area of Manhattan are offering space to companies that need a place to regroup. Technology firms like Bluefly.com had seen their square footage needs decline over the past months and now will be putting extra space to use for displaced businesses.
The enormity of last week's destruction will create both short- and long-term chaos for displaced companies seeking a place to rebuild their businesses. At the end of July, 23.3 million square feet were available for rent in Manhattan, while 10.1 million square feet were offered as sublease space.
"So essentially, the displaced tenants account for about 73 percent of all space currently available either for direct or sublease space in Manhattan," Bach said.
Surrounding areas may offer some relief. About 4 million square feet are available in Westchester County, in addition to 600,000 square feet of sublease space. Stanford, Conn., offers 4.2 million square feet of available space, plus about 1 million square feet of sublease space. And in Northern New Jersey, there are 12.2 million square feet available, in addition to sublease space of 5.5 million square feet.
But many of the large firms seeking space will be looking for full floors to rent. And not much full-floor space is available on the market, Bach said.
Jones Lang LaSalle predicted that the disaster will create some additional challenges for the real estate industry. For one, economic uncertainty could prompt companies to delay real estate decisions. And prestigious office buildings that once could demand premium rents - especially for higher floors - may have a harder sell on their hands.
Major firms also may adopt a multi-premises strategy, decentralizing to minimize losses in the event of a catastrophe. And building management costs could rise as security is stepped up and insurance premiums rise.