Will Companies Flee
The New York Area?

Cities that have long looked upon New York with envy rushed to show their solidarity following the attacks on the World Trade Center. But as the nation gets back to business, several of the country's other financial centers are wondering if they might see a shift in some business operations out of New York and to their regions.

In Chicago, which has long struggled to play catch-up with New York, local leaders say they are stepping up to the plate. "We are the financial capital right now, until New York gets back on its feet," says Jeff Kaye, a spokesman for the Chicagoland Chamber of Commerce.

In the long run, some people see a gradual dispersal of staffs from centralized offices in New York. "There won't be a wholesale movement of people from New York to Chicago," says J. Paul Beitler, chief executive of Beitler Co., a local developer. "What's going to happen is that companies will move certain functions here, at least temporarily, and then they'll beef them up." John Murphy, a broker with Chicago's M.B. Beitler, says he already has received several inquiries since Sept. 11 from New York-based companies looking to add to their existing space in Chicago.

Steve Fifield, another developer in Chicago, says that as companies step back in coming months and reassess their geographic decisions, cities like Chicago, Atlanta and Dallas could see tenants representing as much as 500,000 to one million square feet a year slowly adding space in markets outside New York.

For cities like Boston or Philadelphia, which are within driving distance of New York, "there's a lot of logic to it," says Tim Halloran, executive vice president in the Boston office of New York real-estate services firm Insignia/ESG, a unit of Insignia Financial Group Inc.

In Boston, says Mr. Halloran, "there happens to be space available that's conducive in both the suburban and downtown markets. Boston is also well established as a financial center of its own with the infrastructure and employment here, so it could make a good second home."

Of course, nobody is expecting a wholesale move out of New York to the nearby New Jersey suburbs, much less to New England, the Midwest or the South.

The Labor Pool

John Cushman, chairman of Cushman & Wakefield Inc., one of the largest real-estate services firms in the country, says the company has seen no effort by New York companies to move to other cities. "There is no groundswell whatsoever to leave New York," he says. "New York is the financial center of the world, and it will continue to be."

Part of the reason: the labor pool. "The concentration of expertise in the financial district in New York just doesn't exist to the same magnitude in other locations," says Joe Learner, executive vice president in the Chicago office of New York real-estate services firm Julien J. Studley Inc. "It's hard to think that you could shift large portions of your business to other places and have the same access to the same talent pool."

But many cities that have been aggressively trying to recruit firms from New York and elsewhere for years will continue to do so, though they don't want to be seen as preying on New York's tragedy. Rob Walsh, president of Charlotte Center City Partners, a downtown-promotion group in the North Carolina city, says he hopes the "barracudas and sharks" don't take advantage of New York by seeking to woo its companies to another city. But if companies "choose to leave, obviously we have an open door," adds Mr. Walsh, a native New Yorker.

Long-term trends could be accelerated by the terrorist attacks, though, as security concerns push companies to re-evaluate their strategies.

Dallas, for example, has been marketing itself as a major financial center for years, with many companies using the city as a back-office or call-center site. Recent events in New York could give the city additional leverage in pitching itself as the ideal back-office location, says Bernard Weinstein, director for the Center for Economic Development at University of North Texas in Denton. "There will be some rethinking, and maybe long term, we may see more of a dispersal of the financial-services industry," he says. "The physical location isn't that important because everything is done on computer."

Dary Stone, president of real-estate developer Cousins Properties Inc. in Atlanta, says he hopes it is quality of life and cost of living, rather than recent events, that motivate companies. "Although the South might benefit, we hope patriotically that businesses don't make those decisions for fear reasons," he says.

Most Expensive Market

Certainly, one of the continuing lures of markets outside New York is cost. Given the technology fallout in San Francisco, New York is once again the most expensive real-estate market in the country. Average office rents in New York during the second quarter were $47 a square foot, according to Torto Wheaton Research, a Boston real-estate data arm of CB Richard Ellis Services Inc. That compares with about $24 in Chicago, $22.50 in Atlanta, $23 in Dallas and around $24 in Los Angeles.

And with the economic slowdown, many cities now have plenty of space. "With our office market, I think we're in a position to accommodate any outflow" from New York, says Jesse Blout, development manager at the San Francisco Mayor's Office of Economic Development. "Because of the dot-com bust, rents are very favorable" in San Francisco, he adds.

Clearly, it is too early to tell what the long-term fallout from last week's events will be on other cities. In the meantime, though, companies outside New York are reacting to the terrorist attacks by demanding that landlords beef up security and looking for further backup space where firms could keep redundant data files and key staff could relocate in the case of an emergency at their main buildings. Studley's Mr. Learner in Chicago says he usually gets about two calls a year from companies looking to lease backup space, but in the week since the attacks, he already has received eight inquiries.

For many companies, though, leasing such space is cost-prohibitive. "Real estate is one of the most expensive items that a company can have on their books," says Neal Golden, executive vice president in Studley's Atlanta office. "It's not easy in this environment to just be holding space."

-- Amy Merrick, Ken Gepfert, Susan Warren and Lisa Bannon contributed to this article.

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