Impact of Terrorism on Real Estate
The most devastating consequence of any terrorist attack is undoubtedly the loss of human life. However, the economic ramifications, particularly for the real estate sector, are inevitably a concern for many within the industry.
Following the bombings in Bangalore and Ahmedabad on July 25th and 26th, questions have arisen regarding the potential impact on India's real estate markets. With anxieties growing over similar attacks in other cities, it's crucial to consider the short-term global real estate trends observed after the 9/11 attacks on the World Trade Center.
Economic Impacts of Terrorism
Terrorism affects economies through two primary channels. First, attacks directly damage physical and human capital, thus hindering productivity. Second, they escalate fear and uncertainty, potentially exerting a more substantial influence on the broader economy.
Post 9/11 Real Estate Trends
In the aftermath of 9/11, office buildings in prominent locations near Ground Zero experienced higher vacancy rates compared to properties farther away. The attacks significantly heightened the perceived risk of large-scale terrorist acts in Central Business Districts (CBDs), placing substantial pressure on major financial hubs worldwide.
Post 9/11, vacancy rates rose more sharply in buildings considered vulnerable to large-scale terrorist attacks than in those perceived as less likely targets. Although a predicted exodus of occupants and capital from CBDs didn't materialize, new demand was stronger in suburban areas than in CBDs across many global cities.
Short-Term Corporate Responses
Amid the uncertainty, corporations postponed real estate decisions in the short term. Numerous companies opted to renew existing leases rather than relocate. Global corporate real estate expansion slowed, mirroring trends during the Gulf War. Premiums previously commanded by prestigious buildings and top floors saw a slight decline.
Decentralization and Technology
Many large firms embraced a multi-premises approach, enabled by technology, and favored decentralization. Global companies even explored dispersing headquarters activities regionally and internationally to mitigate business disruption. Demand for teleconferencing facilities and broadband connections surged as alternatives to frequent business travel.
Building Management Changes
Building management costs also escalated due to increased security protocols and higher insurance premiums. Many ongoing development projects underwent reviews regarding building specifications and configurations. Security emerged as a key differentiator between Grade A and Grade B office spaces. Buildings worldwide adopted stringent security practices, previously prevalent only in a few developed nations.