Market Analysis: Grading the Midtown Avenues

As high school and college students started donning their caps and gowns and reflecting on their final grades and growth, we at Colliers (CIGI) thought it was the opportune time to look at the growth (that is, asking rent growth) of significant part of the Manhattan office market–Midtown’s prestigious avenues.

Although Midtown geographically stretches from the East River to the Hudson River between 40th and 59th Street, the avenues within the Midtown office market—with a large enough sample set of office inventory—stretch only from Third Avenue to Seventh Avenue and Broadway.

At the top of the asking rent class are Park Avenue ($109.97 per square foot), Madison Avenue ($98.33per square foot) and Fifth Avenue ($91.52 per square foot), influenced by a healthy collection of Class A and trophy buildings such as 767 Fifth Avenue, 375 Park Avenue and 520 Madison Avenue. These three thoroughfares have asking rent averages well above Manhattan’s 1Q 2019 average of $76.57 per square foot and Midtown’s overall $83.18 per square foot average.

On the low end, the three least expensive Midtown avenues include Third Avenue ($63.79 per square foot), Seventh Avenue ($66.48 per square foot) and Lexington Avenue ($68.51 per square foot). But just as important as the current asking rent average is grading the growth of these avenues over the last four years.

Since 1Q 2015, the three avenues which have seen the most significant growth rate are Park Avenue with a 29.8 percent increase, Madison Avenue with a 23.6 percent increase and Avenue of the Americas with a 19.2 percent increase. They each outperformed Manhattan’s overall asking rent increase of 13.2 percent and far surpassed Midtown’s overall average increase of 9.2 percent during the same period.

The reasons for these impressive performances can be attributed to a few factors.

First of all, a slew of new construction, Class A and trophy product with large blocks of available space—with above-average asking rents—were recently added to the availability rate along these three avenues. This includes availability at buildings such as 550 Madison Avenue, 335 Madison Avenue, 425 Park Avenue, 375 Park Avenue, 1271 Avenue of the Americas and 1114 Avenue of the Americas.

Secondly, these avenues have attracted large (more than 50,000 square feet) tenants from across the Manhattan market over the last several years such as Take-Two Interactive at 1133 Avenue of the Americas, Latham & Watkins at 1271 Avenue of the Americas, Tommy Hilfiger at 285 Madison Avenue, The Trade Desk at 1114 Avenue of the Americas, Citadel at 425 Park Avenue, Millennium Management at 399 Park Avenue, Salesforce.com at 1095 Avenue of the Americas, and Golub Capital at 200 Park Avenue.

Furthermore, massive (more than 500,000 square feet) renewals from UBS (1285 Avenue of the Americas), 21st Century Fox/News Corp (1211 Avenue of the Americas), MetLife (200 Park Avenue) and JPMorgan Chase (JPM) (277 Park Avenue) have also helped keep supply in check.

On the flip side, the remaining avenues in Midtown have seen flat-to-negative rent growth since 1Q 2015. Third Avenue’s asking rent average increased by only 3.8 percent to $63.79 per square foot. Broadway’s asking rent average decreased by 1 percent to $69.65 per square foot, Lexington Avenue decreased by 2.4 percent to $68.51 per square foot, Seventh Avenue dropped by 7.5 percent to $66.48 per square foot, and Fifth Avenue’s rent average fell by 14.3 percent to $91.52 per square foot.

A few circumstances can best explain why Fifth Avenue experienced the most significant drop off. First, more than 300,000 square feet of short-term space with below-average asking rents was listed last year at 666 Fifth Avenue. Additionally, lower re-pricing of 100,000-plus square-foot blocks occurred in the last few years at buildings including 575 Fifth Avenue and 717 Fifth Avenue.

Although Fifth Avenue’s rents dropped the most over the last four years, the next four years could be an opportunity for a turnaround. A rumored new 1 MSF office project by Harry Macklowe has been mentioned in the press near St. Patrick’s Cathedral just off Fifth Avenue, while 50,000-plus square-foot leases have been signed in the last 18 months along the avenue by Convene (530 Fifth Avenue), Rockefeller Capital Management (630 Fifth Avenue), Estee Lauder (767 Fifth Avenue) and WeWork (609 Fifth Avenue).

As school lets out for summer and report cards are sent home, the 2019 class of avenues within Midtown saw some finish with top honors and others finish at the bottom of the class.

The clear valedictorians of this year’s class are Park Avenue, Madison Avenue and Avenue of the Americas, who benefitted from a mix of new construction and blocks of Class A space coming online, existing anchor tenants staying in place, and new tenants moving into the avenues.

It’ll be well worth watching to see their “academic” performance over the next few years.

Frank Wallach is senior managing director of the Research Group for Colliers International Tri-State. For questions about the data in this article, please email Frank or call him at (212) 716-3603.