Recovering From an External Economic Shock: The Effect of Terrorism Threat on Chicago “Trophy” Buildings and Their Immediate Area

Abstract

This paper studies the extent of the office market recovery of the shadow (immediate) areas of three Chicago trophy buildings (Sears Tower, Aon Center, and John Hancock Center) comparing before and after September 11, 2001 (9/11) office market trends from 1997 until 2005. The results indicate that these three areas have not yet fully recovered almost five years after 9/11 based on their direct and sublease vacancy rates. Controlling for all three shadow area fixed effects, sublease vacancies after 9/11 increased on average by 84% and direct vacancies increased by 69%. In contrast, there is no statistical difference between the before and after 9/11 rent levels for all three shadow areas.