We Need to Clear the Air About Midtown
There has been a lot of innuendo about the lack of spark in prime Midtown submarkets of late.
Headlines such as “Midtown South Remains Hot” and “Downtown Lands Another Tenant” have been quite prevalent. You may have even seen “Penn Station: the Next Hot Submarket”—oh, wait, that was mine a few weeks ago.
In any case, I thought it was time to clear the air regarding Midtown, starting with one of the best performers of 2013: the Newmark Grubb Knight Frank submarket of Avenue of the Americas/Rock Center. Yes, that’s right, this supposedly moribund concrete corridor is back, baby. With 44 Class A buildings comprising 42.1 million square feet of inventory, Avenue of the Americas/Rock Center is the second largest of our six Midtown submarkets, just behind Grand Central. Its canyon of office towers starts (according to NGKF parameters) at 42nd Street and wraps up at Central Park South. And although regarded primarily as a hub for financial services, media makes up a big part of the tenancy, too.
Due to tenant relocations and other firms shrinking in size, the submarket was pounded pretty hard not only during the recession but also more recently, culminating with an availability rate of 15.7 percent in February. It was sublet availability that really did a number on Avenue of the Americas/Rock Center; in February, the figure hit 2.2 million square feet, its highest level since May 2009. However, some savvy marketing combined with price discounts on long-term sublets reduced that figure dramatically. Sublet availability ended in August at under 1.3 million square feet, the lowest level in five years. This has pulled the total availability rate down to 13.2 percent, a 250-basis-point drop in just six months.
Granted, direct availability has remained stuck at around 4.3 million square feet since October of last year—much higher than the 10-year average of 2.9 million square feet. And the submarket does have its fair share of big availabilities (17 buildings with at least 100,000 square feet available, to be exact, with 11 of those direct). Looking just a couple of years out, there could be a few big blocks added to that mix thanks to potential relocations.
I know what you’re thinking: It doesn’t sound like the area is “all that.” But I beg to differ. With blocks of space available in a great location at price points not far off the prime rates NGKF is seeing in Midtown South, there has definitely been some tire-kicking going on. While it may take a bit longer to work off direct availability than it did to bring sublet availability in check, this concrete corridor will no doubt keep its star Manhattan status over the long-term.