The Midtown availability rate continued to decline in October, dropping another 20 basis points to 11 percent.
This trend can mostly be attributed to the red hot west side of Midtown, the Fifth/Madison submarket performing well with Class A asking rents approaching $110 per square foot and even the Avenue of the Americas corridor improving over the last six months with more than 500,000 square feet of positive absorption year-to-date. So what is or, better yet, what area is keeping Midtown from reaching market equilibrium?
The east side of Midtown is the simple answer, which combines Cassidy Turley’s East Side/U.N. submarket with the Grand Central submarket. This area has a 13.2 percent availability rate, and Class A and Class B average asking rents are 18.3 percent and 5.6 percent off the Midtown average, respectively.
Digging even deeper into the numbers, we see that the Third Avenue corridor (from 40th Street to 59th Street) has a 14.1 percent availability rate and is the major contributor to the soft market conditions on the east side of Midtown. Within the Third Avenue corridor, there are 33 buildings totaling 19.3 million square feet of office space. Of these 33 buildings, there are more than 2.7 million square feet of available space, and only one is fully leased. There are five buildings with blocks of available space greater than 100,000 square feet, which accounts for 46 percent of the available supply on the Third Avenue corridor. Of these five buildings, four of them are located from 40th Street to 44th Street, and they represent one quarter of the big blocks of space available in the Grand Central submarket.
Class A asking rents on Third Avenue average only $61.10 per square foot—a significant discount from the Midtown Class A average asking rent of $78.57. Class B average asking rents are more in line with the Midtown Class B space, averaging $55.43 per square foot along the Third Avenue corridor, compared to $58.97 in Midtown.