Mass Transit, Renovations and Bargain Prices Drive Demand Along Third Avenue

Analyzing who would advance in the annual college basketball tournaments was the kind of task that could have been done from home in recent years. Four years ago, COVID-19 swept through the country, forcing the marquee event’s cancellation and shuttering nonessential workplaces for months.

Now the 40-story office tower, which Durst cleared out after Advance Publications left and reopened after a three-year $150 million renovation in 2022, is beginning to fill up again. More than a third of the building’s 530,000-square-foot offering has been leased, and Durst expects half its tower to be occupied by tenants in the coming months.

Ashlea Aaron, Durst Organization senior managing director of commercial leasing, has been leading so many tenant tours at 825 Third that she has spent much of the year camped out in its 12th-floor amenity center instead of Durst’s headquarters at 1 Bryant Park.

“It’s been extraordinarily busy, the reception has been better than we could have hoped for,” Aaron said. “It’s important to bring employees into a space where they can be happy, productive and in a great environment to get work done. In this building, tenants have been very happy.”

Eastward, ho!
The asphalt corridors east of Grand Central Terminal have often been overlooked compared to their more posh Plaza District counterparts.

But a number of notable renovations along the Third Avenue corridor, led by Durst’s 55-year-old Emery Roth & Sons-designed high-rise, have helped spur a bit of an East Midtown resurgence.

By the end of 2022, one-quarter of Third Avenue’s office space was on the market or soon to be on the market, one of the highest availability rates in the city, according to a Colliers (CIGI) report.

Since then it’s been a different story. Employers have scooped up high-end offices between Park Avenue and Avenue of the Americas, pushing prices upward between Grand Central Terminal and Rockefeller Center. 

Now companies that don’t want to pay premium Park Avenue rents for a dwindling supply of ritzy offices are venturing farther east. The availability rate of office space on the East Side fell from 23 percent in April 2022 to 19 percent in February 2024, while dropping on Park Avenue from 15 to 12 percent over the same period, according to CBRE (CBRE) market reports.

“We’re starting to see a spillover where areas in the vicinity of Grand Central are getting more activity, and that is starting to bleed into Third Avenue,” Michael Slattery, a Manhattan research manager with CBRE, said. “The high price point on Park is filling up very rapidly. Financial services and law firms are looking for a quick commute in the next tier.” 

But businesses entering the market aren’t just exploring East Side sites because they’re more affordable than Midtown’s top-of-the-market suites. Third and Lexington avenues’ proximity to Grand Central, which opened direct service to the Long Island Rail Road in February 2023, is an even more significant draw for employers seeking to lure their commute-averse workforce back to the office. Thanks to the East Side Access project and the city’s continued pandemic recovery, ridership to Grand Central Madison — the newer part of the terminal servicing that LIRR line — is expected to nearly double from 2.8 million in 2024 to 5 million by 2027, according to Metropolitan Transportation Authority forecasts and a state comptroller report.

“Location to mass transpiration has never been more important than now,” CBRE Vice Chair Paul Amrich said. “It’s a return-to-work perspective, and employers are saying whatever I can do to keep my employee base more excited about coming to work or make it easier. So, if you can cut your commute time by 15 minutes each day both ways, that’s 30 minutes a day, and that starts to add up.”

Those trends are likely to continue based on tenant frenzy for East Side properties. Touring activity on Lexington, Third and Second avenues in the East 40s and 50s jumped 40 percent between 2022 and 2023, according to data collected by VTS, a commercial real estate software company. And the number of tenants entering offices in that submarket rose just over 50 percent from 2022 to 2023, to 386, VTS said.

“There’s not much space that’s available on Park, and the space that is available is extremely high priced, so the release valve then becomes a renovated high-quality product on Third Avenue,” said Ted Skirbunt, VTS’s director of market research. “There’s still a lot of interest on Park Avenue, but the increase was greater on the East Side.”

Who’s on Third?
The beneficiaries of the eastward migration are some of the real estate industry’s largest players.

Fisher Brothers, SL Green Realty, Tishman Speyer, Rudin Management, Nuveen Real Estate and Durst all boast Third Avenue skyscrapers that have lured a mix of tenants eager to pay rents that are half of those in other parts of Midtown. 

Some have undertaken extensive renovations to add a swath of modern amenities to their towers. Nuveen poured $120 million into overhauling its 27-story headquarters at 730 Third Avenue in 2021. Last summer, the Boston-based law firm Goulston & Storrs relocated to a 30,000-square-foot office in the building, then powerhouse lobbying firm Capalino Associates signed an 8,000-square-foot lease there a couple of months later. 

Up the street, the city’s largest office landlord, SL Green, finished a $500 million refinancing at 919 Third Avenue a year ago while redoing its lobby, replacing its elevator cabs, and installing a new bike room and a coffee bar. And, at 485 Lexington around the corner from Third, SL Green completed five separate transactions over the past 45 days.

Smaller to mid-size tenants that are more price sensitive are driving the market in the East Side now, according to Steve Durels, executive vice president and director of leasing at SL Green. He also believes Grand Central remains the area’s most important selling point.

“I don’t think you can understate the convenience to Grand Central. People want that as part of their daily commute,” Durels said. “Five years ago, tenants were saying, ‘Hey I just want a cool building and I want to sacrifice location’ by going to the Far West Side or downtown, but priorities have changed and now it’s part of their decision-making.”

Durst, which leased 395,000 square feet on Third Avenue last year alone, has been able to attract a mix of financial and legal tenants to 825 Third at asking rents between $78 and $98 per square foot. The nonprofit Child Mind Institute signed an 82,000-square-foot lease in June, followed by Genius Sports in September, and Dimension, a solar energy developer, that came aboard in February. (Asking rents in Midtown overall averaged $83 per square foot over the winter, while average rents along Fifth and Madison avenues approached $114 and askings in Hudson Yards/Penn District averaged $107 per square foot, according to CBRE data.)

But Durst has also had success luring tenants in its more affordable properties. The developer renovated the lobby of 655 Third Avenue while adding a new HVAC system and windows, but kept rents between $69 and $75 per square foot. The upgrades helped it jump from 52 percent leased in 2022 to over 85 percent today. In August, the state’s economic development arm Empire State Development signed a lease to move its offices up the street and signed a 20-year lease to take up five floors of 655 Third. And, in April, general contractor Clune Construction is moving its New York City headquarters to the 10th floor of the building in a 23,437-square-foot lease.

Predictably, too, new restaurants and retail options have opened along Third Avenue as more workers have returned. The Hugh, a multilevel food hall that opened in Citigroup Center in 2021, has become the area’s go-to haunt for casual lunches and meetings. This spring, Rosemary’s Cafe is set to open a 100-seat restaurant with a 42-seat sidewalk cafe in Durst’s ground-floor space on 50th Street and Third Avenue. 

Owner Carlos Suarez said he wanted to contribute to the neighborhood’s revitalization as foot traffic to the area has returned four years after the pandemic. 

“The corner historically has had extremely successful restaurants, and we think there’s a lot of strength at the location and history to support it,” he said. “Strategically, it’s well positioned. We think the future is bright there and we’ll be part of that area’s resurgence.”

CORRECTIONS: This article has been updated to reflect that Durst leased 395,000 square feet along Third Avenue last year, not that it owns that much space. Also, Empire State Development signed a lease to move to 655 Third; it has not yet moved. Finally, Rosemary’s Cafe will be at 50th Street and Third, not 53rd and Third.