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» Terrorism's impact on real estate

Date: Aug 22, 2008

Author: Economic Times

Human life is unquestionably any terrorist attack's most tragic casualty. However, the economic impact and impact on real estate is unavoidably in the minds of many in the industry.

After the bomb blasts on July 25 and 26th in Bangalore and Ahmedabad, a number of questions have been raised on how terrorist attacks could have an impact on the real estate markets in India. With worries looming large over similar attacks in other cities, it is time to reflect on some of the short-term global real estate trends which were seen after 9/11 terrorist attacks on the World Trade Centre.

There are two mediums through which terrorism impacts economies. Firstly, terrorist attacks have a direct impact on our economy because they destroy productive physical and human capital. Secondly, terrorism increases the level of fear and uncertainty which could have a larger impact on the overall economy.

After 9/11, office properties in landmark buildings in the proximity had experienced increases in vacancy rates than office properties not located in the nearby areas. The attacks have also drastically increased the perceived risk of large-scale terrorist attacks in Central Business Districts (CBD) and in turn, placed particularly large pressures on major financial centres world over.

In the post 9/11 era, vacancy rates had increased more for buildings with a high perceived vulnerability to largescale terrorist attacks than for buildings that are not perceived as preferred targets. After the WTC attacks, it was anticipated that there would be a flight of occupiers and capital from the CBD areas. Even though this did not happen, new demand was stronger in suburban markets than in CBDs in many cities around the world.