Leasing Activity Falls 34% on East Side
The East Side market got a much-needed shot in the arm earlier this year when Citigroup Inc. decided to remain in its 500,000-square-foot space at 601 Lexington Avenue.
“Citi renewed its commitment,” said Cynthia Wasserberger, a managing director at Jones Lang LaSalle who was among the brokers representing landlord Boston Properties. The banking conglomerate, which had signaled during the downturn that it might divest itself of the offices, instead “chose to let other space lapse,” Ms. Wasserberger added.
The transaction helped stabilize a submarket where the vacancy rate jumped 2.3 percent to 10.2 percent in the third quarter from a year earlier, according to Cushman & Wakefield analysts.
In line with Midtown as a whole, year-to-date leasing activity fell 34 percent in the East Side office market, which stretches from Lexington Avenue east between East 47th and East 72nd streets.
“The general theme is, the market is stagnant,” said Peter Shimkin, senior managing director at Newmark Grubb Knight Frank. “There’s a lack of depth in the marketplace.”
Brokers said the East Side has struggled to establish an identity, with clusters of Class A office towers plunked down in the midst of low-rise apartment and retail buildings. The area’s chief attraction is buildings that offer a corporate environment at a lower price than in the areas to the west. Rents averaged $62.45 a foot on the East Side, compared with $79.30 along Park Avenue and $95.01 in the Madison/Fifth submarket, C&W analysts said.
Landlords along Third Avenue have been upgrading such properties as the Lipstick Building at East 53rd Street to cater to boutique tenants, brokers said.
“It’s always been a mixed bag,” said Corey Abdo, principal at Winoker Realty. “Tenants are driven more by the commute patterns of the officers of the companies. It’s a location of convenience rather than industry.”
Other notable transactions in the area included this month’s deal by Goulston & Storrs at the Lipstick Building, a case in which a tenant is staying in the neighborhood. The international law firm will relocate from 750 Third Avenue, just south of the submarket, to a 19,270-square-foot office that spans the entire 18th floor of Argentina-based IRSA’s red granite building.
The floor once housed the computer and filing systems for Bernie Madoff’s $65 billion dollar Ponzi scheme that operated out of three contiguous floors in the building. IRSA, which bought the building after the previous owner filed for bankruptcy in 2010, will build out the space to suit the law firm.
In the third quarter, Interpublic Group leased 220,000 square feet at 909 Third Avenue, according to a report by Cresa. The large advertising and media conglomerate will relocate several subsidiaries from 919 Third Avenue, also within the submarket, people familiar with the deal told The Commercial Observer at the time. The company wanted to remain nearby to preserve commuting patterns for its employees.
When Citigroup renewed its lease in May, a spokeswoman said the company was consolidating Midtown offices as part of its efforts to manage expenses and increase operating efficiencies.