Terrorism or the threats of it have large negative impacts on economic activities. Yet very few studies have been done to quantify the effects of terrorism or the threat of it on economic activities. This research project will employ data from two major Central Business Districts in the U.S. (New York City and Chicago) and up to date econometric methods to investigate the impact of an increased perception of terrorist risk on economic outcomes. Downtown office markets have flourished throughout the years due to economies of agglomeration. However, real estate analysts have suggested that, after the events of September 11, 2001, the value of economies of agglomeration has eroded for cities of certain stature. The New York downtown office market was severely impacted on 9/11, with 44 percent of Manhattans downtown class A space destroyed by the attacks. In addition, the 9/11 attacks increased the perception of terrorist risk in other major U.S. downtowns. Cities like Chicago, with a significant concentration of financial institutions and high-rise buildings were impacted both by the recession pressures created by the 9/11 events and by the fear of a new attack. This methodology will also be used to evaluate the impact of natural disasters, such as hurricane Katrina, on economic activity.
Analysis of economic data (employment) at the zip code level and office market data (rents and vacancy rates) at the smallest available geographic scale (at the building level) will allow the highest level of accuracy in determining the effects terrorist risk on two major U.S. Central Business Districts. Relative to most of the previous literature, rather than describing temporal trends in aggregate data before and after 9/11, this study will use treatment and comparison groups in an effort to assess the impact of terrorism on office real estate markets in Central Business Districts. The methodology and data collected to investigate the effects of the threats of terrorism on commercial real estate will be used by other researchers to investigate the impacts of terrorism and other threats on other markets. Thus, this research will contribute significantly to economic science.
The results of this study will provide guidance to public policy interventions in the field of national security. Moreover, the methodology will be extended to the analysis to other types of catastrophic risks, with particular attention to natural disasters. Finally, the construction of the database and the data analysis will entail the participation of graduate students in the project as research assistants. The educational component and the policy implications show that the research has broader impacts.
