Trade Center Disaster Leaves Businesses Homeless
Subject Market for land
Topic Resource Markets
Key Words Space, price gouging, property market
News Story

The destruction of 1, 2, and 7 World Trade Center has left many businesses looking for office space. Experts expect that, including collateral damage to other buildings, nearly 20 percent of downtown Manhattan's 95 million square feet of commercial space will be out of commission. There may well be a shortage of space, particularly as some businesses wish to stay in lower Manhattan in order to send a message that the goal of the attack will not be achieved. However, no price gouging is being reported in the property market.

Other options include taking up space elsewhere in the city, such as Brooklyn or Long Island, or moving out to places in New Jersey or Connecticut. In spite of being competitors in some cases, there are cases of firms are reaching out to offer temporary space to displaced businesses. Finally, some companies, such as Lehman Bros., are having certain employees work from home.

(Updated October 1, 2001)

1. Draw a diagram of the downtown Manhattan market for commercial space, with the rental rate on one axis and the quantity of space on the other. Show the market initially in equilibrium.
a) Show what will happen to the quantity of space as a result of the collapse of the World Trade Center if rental rates do not rise. Will equilibrium be reached? Explain.
b) Why would it be beneficial for rental rates to increase?
c) If some firms move out of downtown Manhattan, how will the equilibrium change? Illustrate on your diagram.
2. Some businesses are determined to remain in downtown Manhattan.
a) What does this imply about their elasticity of demand for space in downtown Manhattan?
b) What are the implications for the demand curve in your diagram and the change in equilibrium rental rates?
Source Theresa Howard, "20% of office space may be gone," USA Today, September 14, 2001.

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