We recently reported that the Manhattan commercial property market would bounce back from the devastation caused by Hurricane Sandy. Last week the New York Times published a story revealing the difficulties faced by firms still struggling to return to business as usual and a potential time bomb for their landlords.
While the focus of the media has naturally been on the loss of lives and the number of people unable to return to their homes, the commercial heart of the city continues to suffer. Today there are 15 to 18 million square feet of Lower Manhattan office space that is unusable weeks after Sandy struck the East Coast of America.
To put this into perspective, this equates to the entire office stock of cities such as Miami, Phoenix and San Diego. In addition to this unusable space many other office buildings are powered by generators that allow them to operate in a limited way, but even these lack telephones and access to computers.
The flooding caused by Sandy wiped out 95 per cent of the district’s traditional telecommunications network as salt water and diesel fuel destroyed the copper wiring on which it runs. The fibre optic network was not as seriously damaged but even so all the equipment apart from the cables must be replaced.
The situation has enormous financial implications that are only now being considered. Not only is it damaging to businesses, it could lead to serious repercussions for landlords and the longer the situation continues the worse this could be.
If tenants do not have access to their offices they are freed from the obligations of the lease. The point at which this clause is activated varies, but three months is the average. This means that tenants who signed leases when Manhattan rents were high could walk away without suffering any penalty.
“Tenants run out of patience,” said Steven Spinola of the Real Estate Board of New York. “You and I and everybody would run out of patience.”
Mr Spinola believes that 95 to 98 per cent of office space could be usable by January but this is dependent on telecommunications being restored and the company responsible is making no promises.
Mayor Michael Bloomberg has described the situation as unacceptable. “Those buildings in downtown that lost electricity and heat should be back up by the end of this month,” he said.
“But they can’t be occupied unless we have telephone service. Even today, five weeks after the storm, there are just too many people who cannot come back to work here.”
If people cannot return to work by the end of January, this will be the point at which tenants would be freed from their leases. Manhattan landlords will be monitoring the situation anxiously.
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