In Much of Midtown’s Office Market, It’s Like the Pandemic Didn’t Happen

One need only look at the stats. Midtown’s office asking rents averaged $84 a square foot as of Sept. 1, ahead of the $77.86 a square foot for Manhattan overall, according to CBRE (CBRE) data. The Midtown average is also gaining on the pre-pandemic average rent of around $87 a square foot

What’s more, the same data shows that asking rents for office space in four districts within Midtown — the Plaza, the Penn Station/Hudson Yards, Fifth Avenue/Madison and the Park Avenue corridor — averaged above $100 a square foot by September. These are easily the costliest office asking rents in New York City — and perhaps the U.S. — and are now similar to the asking rents in these districts pre-pandemic. 

Also, Midtown’s availability rate, which measures vacant office space plus space about to become vacant, is running about 2 percentage points below Manhattan overall and a few points lower than both Midtown South and Downtown. The Park Avenue corridor’s availability rate was 7.6 percent, while the traditionally pricey Plaza District stands at 13.8 percent, approaching its equilibrium level, according to CBRE. 

“I think the press is about six to 12 months behind reality,” said Mark Weiss, a Cushman & Wakefield (CWK) executive vice chairman and a four-time winner of the Real Estate Board of New York’s Most Ingenious Deal of the Year Award. “The work-from-home, hybrid trend in New York City is irrelevant, it’s gone. Companies are expanding again and we are seeing [rents] 20 to 25 percent higher in price. Anyone who thinks that workers working from home aren’t looking to be fired is kidding themselves.”

Again, the statistics seem to support the thesis — in Midtown especially, but in the borough overall. 

“The activity we’re seeing in overall Manhattan speaks to the current strength of the Manhattan office leasing market,” Danny Mangru, the U.S. office lead for market intelligence at Avison Young, said in a statement. “Leasing activity is up 25 percent from a year ago, and we’ve witnessed the first quarter of sub-19 percent availability rate since Q1 2021.”

Avison Young reported that 23.1 million square feet of office was leased in Manhattan in the third quarter, a 25 percent increase over this time last year, with Midtown showing the strongest year-over-year growth in office “busyness” — or the presence of workers using the space.

Some of the biggest recent deals included Blackstone’s renewal and expansion at 345 Park Avenue — which would give the private equity giant 1.06 million square feet there, adding 340,000 square feet to its footprint at its headquarters — and auction house Christie’s 406,700-square-foot renewal at 20 Rockefeller Plaza.

A deeper look at the market shows that there are those pockets where you wouldn’t even know there had been a pandemic-related downturn. Think places such as the Sixth Avenue/Rockefeller Center corridor; lower Park Avenue, roughly from Grand Central Terminal to East 59th Street; and the Hudson Yards area, where all the skyscrapers are brand new or close to it. 

There are other parts of Midtown, such as the Third Avenue corridor and the Garment District, where the buildings are older, not nearly as state-of-the-art nor as heavily amenitized. These neighborhoods are still struggling, and some owners are even considering converting their longtime office buildings into residential towers, with some projects underway. 

According to data from CompStak, a research firm that tracks office leasing, average effective rents — those rents actually struck as opposed to the more widely quoted asking rents — averaged just over $80 a square foot in the second quarter in Midtown minus the Third Avenue corridor. Compare this with a breakout of the Third Avenue corridor’s rents, which average about $60 a square foot. Not too bad compared to central business districts in the rest of the country, but low for Manhattan’s Midtown.

Effective Midtown office rents rose two consecutive quarters in the first half of 2024, to their highest level since the first quarter of 2023,  which was the post-pandemic peak, according to CompStak. The share of deals above $100 a square foot reached 17 percent — up even from pre-pandemic 2019, when the share of deals asking $100 a square foot was 11.9 percent.

Midtown’s priciest submarket was the Park Avenue corridor, with a weighted average rental rate of $108.84 a square foot, followed by the Penn Station area, which includes Hudson Yards,  at $106.24, according to Cushman & Wakefield. The Madison Avenue/Fifth Avenue corridor finished third at $105.77 a square foot.

CBRE pegged the Plaza District’s average asking rent at $125.07 a square foot in the second quarter — the highest in a data set going back to Q1 2018 — followed by the Penn District, including Hudson Yards, at $106.02, and the Park Avenue corridor at $101.55 a square foot.

“The premier product — the Class A stuff — is really doing well,” said Paul Myers, a vice chairman at CBRE and a tenant representation specialist. “That stuff is mostly leased. You’re starting to see a trickle-down into the B-plus product, and the rest of the rest is starting to do well.”

One problem that worries brokers is that Midtown is running out of state-of-the-art space, with relatively new towers like One Vanderbilt and buildings in the eastern half of the Hudson Yards filling up. Construction of new Class A product, too, is slackening, with little to no new product coming.

“We 100 percent need to build new product,” Myers said. “It used to be real estate was always location, location, location. Now it’s about quality, quality, quality.”

With skyscrapers that came online in the 2010s now filled up, “we’re delivering nothing in `25, nothing in `26, nothing in `27 unless someone starts today,” Myers said. 

There are, in fact, six office projects currently under construction in Manhattan. The biggest, at 1.9 million square feet, is 270 Park Avenue, J.P. Morgan Chase’s future headquarters. Two others, 1 St. Marks Place and 1 High Line, are primarily residential projects with office footprints of fewer than 50,000 square feet each.

There are another 35 office projects planned or proposed throughout Manhattan comprising some 31 million square feet, 27 of which are in Midtown. Those include 350 Park Avenue (the skyscraper with 1.8 million square feet that Ken Griffin’s Citadel investment house will anchor). The number also includes two planned towers over the Port Authority Bus Terminal, at 3 million and 2 million square feet.

Another, the redevelopment of the Grand Hyatt hotel site, which is on CBRE’s list, is being co-developed by RXR and TF Cornerstone. Plans call for 200 hotel rooms and 2.5 million square feet of offices, an RXR spokesman said. It is the site immediately east of Grand Central. The One Vanderbilt tower is immediately west of the terminal. The Grand Hyatt project, which is sometimes called Project Commodore, is sandwiched between the terminal and the Chrysler Building.

Despite the positive numbers, not everyone believes the dark clouds shading Midtown office have passed.

Stijn Van Nieuwerburgh, a professor of real estate and finance at Columbia Business School, whose dire June 2022 paper written with colleagues at New York University and the University of North Carolina at Chapel Hill helped popularize the phrase “urban doom loop” in portraying the future of the U.S.’s CBD office markets, is sticking to his guns. He said he remains sure the future of urban office markets, including Midtown’s, is bleak.

“The trend is clearly positive,” Nieuwerburgh said. “There is improvement, but I think we need to keep in mind that vacancy rates are still near historic highs. There’s still a lot of leases that will come up in the next two years, and who knows what those tenants will do?”