Among the casualties of September 11 was one of the country's most productive shopping areas in terms of sales per square foot. In an instant, the attack took out the 425,000-square-foot mall-like concourse beneath the Twin Towers operated by Westfield Group. In the months after the disaster, occupancy rates in the residential buildings dropped to 65 percent from 95 percent as locals fled damaged apartments. Office vacancy rates, already high, climbed to 11.4 percent by mid-2002 from about 9.7 percent, according to CoStar Group. In short, retail demand evaporated.

But, despite the lengthy battles over the redevelopment of the World Trade Center (WTC) site itself, and continuing softness in the office market, downtown retail is bouncing back. Three years later, the residential population has surpassed pre-September 11 levels, making the Wall Street neighborhood the fastest growing residential market in Manhattan (albeit off a small base). And new office developments are on the drawing boards, including a 2 million-square-foot headquarters for Goldman Sachs. Goldman had developed a 1.5 million-square-foot tower across the Hudson River in Jersey City, that had been planned before September 11. But key executives and traders balked at the relocation, and by 2009, the investment bank will build a 1.9 million-square-foot building in Battery Park City's only remaining commercial tract, overlooking Ground Zero.

At the same time, tourist traffic has soared, as people from all over the world come to see the site of the terrorist attack. It all adds up to a desirable retail environment: lots of upscale residents and a flood of workers and tourists. But there's not exactly a rush to find space downtown.

The primary reason is lingering uncertainty about what kind of retail space will emerge from the WTC site. “It's an evolution, not a revolution,” says Shirley Jaffe, vice president of planning and economic development at the Downtown Alliance. There's a steady trickle of national retailers to certain downtown sites such as lower Broadway, where the convergence of two subway lines generates great street traffic. There's Ann Taylor, the first to make a big commitment to downtown post-September 11, the Loft, Borders Books, Aerosoles, Nine West and the Mexican restaurant chain Chipotle. Discount store Daffy's is the latest to commit to the area, with a store planned for next April.

“We're very bullish about lower Manhattan,” says Daffy's chief executive, Marcia Wilson, herself a downtown resident.

Retailers such as Banana Republic and Eckerd Drugs have set up shop in the World Financial Center, the office towers that hug the Hudson west of the WTC site. The biggest news is rumors of the arrival of Whole Foods, which would be a welcome addition to a supermarket-starved area and a sign that the neighborhood has finally been identified as a viable residential district. Neither the company nor brokers will comment on the buzz, but Chris Pine, vice president of real estate and development at Whole Foods, acknowledges: “We are looking aggressively in that market.”

The key signal for a retail rush to downtown Manhattan will be a definitive answer on how the 16-acre WTC site will be redeveloped. “Retailers are not pioneers,” says Elizabeth Obloy, managing director of national retail at Studley brokers. “They would rather be a little late than too early.”

That could take awhile. Although the basic plan for the area has been established, many details are pending. For one, Larry Silverstein, who held the lease on the WTC office space and will build the new office space, is in ongoing litigation over his insurance settlement, which seems to be dwindling. And while the Freedom Tower and the memorials have been designed, and some buildings, such as WTC tower 7 and the PATH train station are under construction, the configuration of retail space remains vague.

“The actual square footage is close to being determined, but there are still some battles as to how much will be permanent, how much temporary and how much will be built underground,” says Richard B. Hodos, president of retail consultants Madison HGCD. Decisions have to be made about “permanent” retail allotments beneath the Freedom Tower and the PATH train, and “temporary” two-story retail buildings that would be built at street level until the plan is solidified. And even the underground space that must first be built is in limbo. Silverstein is relying on his insurance take to build the Freedom Tower, explains Hodos, and tenants are reluctant to sign on to space that might not be finished for another 10 years.

Much to be done

It may be three to seven years before what is now a vast construction pit becomes a habitat for shoppers. “It's a very complicated site that has to coordinate a lot of pieces,” says Cubie Dawson, a senior vice president with Jones Lang LaSalle, which is advising the Port Authority of New York and New Jersey and the Metropolitan Transportation Authority on retail space. “It has to integrate the Freedom Tower with the memorial, the PATH terminal and the planned performing arts center.”

WTC owner, the Port Authority, and its primary lessee, Silverstein, bought out the Westfield Group, which began operating the former WTC concourse mall only six months before the attack. But according to Dawson, Westfield retains the right of first offer to develop the retail component. The current plan calls for some 600,000 square feet of retail — a mix of specialty shops, restaurants and gift stores, about half at street level and half below, says Dawson.

As in the old complex, much of the retail development will be organized around the transportation facilities. The PATH trains from New Jersey are to get an elaborate station designed by Santiago Calatrava in the form of glass bird wings by 2009. There's also a planned rail link to connect the site to the John F. Kennedy International Airport in Queens, which might actually happen by 2020.

Meanwhile, the MTA plans to break ground next year on a renovated transit center at Fulton Street and Broadway, where nine subway lines converge. The hub will connect to the WTC site and the World Financial Center via new underground corridors. “The infrastructure will contain permanent retail space below the surface that will come on line between 2006 and 2009,” says Hodos.

While they wait for all this to happen, retailers agree that downtown offers dream demographics. Existing stores including discount department store Century 21, which recently expanded, and J&R Music and Computer World, account for about $874 million in annual sales, and the Downtown Alliance estimates there's unmet retail demand worth $1.4 billion to $2 billion. “The market can probably support 2 million square feet of retail,” says Dawson. It's not clear how much exists now.

Wealthy workers

The third largest central business district in the country (next to midtown Manhattan and downtown Chicago), the square mile that extends south of Chambers Street and City Hall and from the Hudson River to the East River is incredibly dense with foot traffic. It contains 280,000 workers — mostly from financial and real estate companies — with average incomes of $140,000 (vs. a national average of $58,000). While they account for only 8 percent of the city's workforce, they represent some 20 percent of its total wages, according to the Downtown Alliance.

The similarly well-heeled residential population has more than doubled since 1990, to 31,000, and tax benefits encouraging conversion of offices to residential space helped add 5,200 new residences since 1995 — about half of them since September 11. Moreover, the area attracts an estimated 8 million tourists annually to various sites including the Statue of Liberty, Ellis Island, the Holocaust Museum, the Museum of the American Indian and of course, the calamitous site itself.

Developers are also working to correct long-existing problems for retail across town on the East River. Observers agree that the South Street Seaport, a conglomeration of historic-looking stores and restaurants on the East River, has never had been a compelling attraction for New Yorkers. And while its street-level stores tend to be high-end retailers like Abercrombie & Fitch, J. Crew, and Coach, its indoor mall is comprised mostly of lower-quality gift stores. “People don't shop at the high-end stores because they can get to them in other parts of the city,” says Faith Hope Consolo, chairman of Garrick Aug Leasing Inc. “The seaport has to be different and exciting and put stores or entertainment in there that doesn't exist anywhere else.”

Circus atmosphere

Plans are purportedly afoot to remake the seaport but as yet, it's not clear how. (One early rumor had owner Rouse Co., recently acquired by General Growth Properties Inc., creating a permanent home for Cirque du Soleil.) “The talking is very preliminary, but I can assure you it will be a completely new approach that will be much more successful than any rehabs,” says Consolo.

Likewise, the retail outlets clustered around the glass atrium of the Winter Garden in the World Financial Center were a poor mix of highly specialized stores laid out in a confusing way. Since September 11, the building's owner Brookfield has addressed this problem with a better mix of tenants and a redesign of the retail space. “We made storefronts more visible from the center of the Winter Garden,” says Ed Hogan, Brookfield vice president of leasing. “We changed corridors and opened vistas so some of the original designs that weren't best suited for retail could improve.”

And small though downtown is, the area has been bifurcated by the West Side Highway and the WTC, both of which blocked the biggest residential concentration in Battery Park City off from the eastern part of the district. One redevelopment recommendation is submerging or narrowing the highway. That and the transit center to the east of the Trade Center site should help open up an east-west corridor. Another ongoing problem is that the retail space that now exists is scattered and doesn't lend itself to storefronts. “The space that's available is not right, it's badly configured, and in the wrong location,” says Madison HGCD's Hodos.

That's another reason for retailers to sit tight. “You have all the demographics that a retailer would want,” says Hogan. “What you don't have is a clustering of stores to really create a shopping district draw. And that's the challenge for the redevelopment.”

Given the planned changes, there's no doubt that the area has a bright retail future. In the meantime, the specs keep improving. Before, the district was so office-bound, retailers stayed open only during working hours. But increasingly, tourists and residents are creating significant weekend traffic. “We used to close our store on Broadway and Dey streets on the weekends,” says Kelly O'Conner, development manager for Starbucks. “Now Sunday is our strongest day.”

DEMOGRAPHIC OVERVIEW

  • Downtown population: 31,000
  • Residents' average age: 35
  • Residents' average income: $138,853
  • Downtown workforce: 280,000
  • Workers' average income: $140,000
  • New residential units since 9/11: 5,200
  • Planned new residences: 7,000
  • Retail sales: $874 million
  • No. of tourists each year: 8 million.
  • No. of commuters in lower Manhattan: 474,000

Source: The Downtown Alliance