Office Building Facelifts Along Park Avenue Spur ‘Tightest’ U.S. Submarket
Take multiple building renovations, add a major transit hub, sprinkle in some reputational oomph — and you’ve got a boulevard’s post-pandemic surge
By Patrick Sisson October 15, 2024 9:00 am
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Renovations are reshaping the Midtown Manhattan office market along Park Avenue. There’s an important catch, though: It’s not so much about creating a new normal for the historic boulevard — home of several marquee addresses, including Lever House, 425 Park Avenue and the Seagram Building — as much as it is about redefining the old normal. That is to say, the changes are affirming Park Avenue as a prestige address, with premium rents to boot.
“If you go back to 2018, 2019, the concept of $100-a-square-foot rents was a novelty,” said Steven Durels, executive vice president and leasing director at SL Green (SLG) Realty, which owns a number of Park Avenue properties. “People were paying $100 rents, but those were for generally smaller, midsize leases. Now, people are paying $150 rents — even $200 rents — and nobody even thinks about it.”
Up and down the double-wide boulevard, significant reinvestments in amenities, facades and interiors have matched up with decreased vacancies and rapidly escalating rents, showing a significant return on investment from what might as well be termed an upgrades arms race. With a total market of about 30.9 million square feet spread over 38 buildings, per CBRE (CBRE), the Park Avenue submarket has a 7.4 percent vacancy rate, almost a third of the national average. The average rent of $109 a square foot is $25 above the Manhattan average.
“Park Avenue is, I believe, the tightest submarket in the United States,” said Mary Ann Tighe, CEO of CBRE’s New York tri-state region. “It’s a landlord’s market.”
Go further and subdivide the market into space on or above the 20th floor, and you’d get a 5.6 percent vacancy rate, with an average going rate of $136 a square foot.
SL Green owns 450 Park, a boutique space that just finished an upgrade, and 245 Park Avenue, which recently commenced $200 million in renovations aiming to redesign the tower’s lobby, plaza and storefronts and to add dining, a golf lounge and a wellness center. According to Durels, the owner has raised rents in the building four times in the past 18 months.
There’s even action farther down the street. At 450-460 Park Avenue South, owner Moinian Group has done roughly 23,000 square feet of leasing this year to various tenants, said Nick Berger, the firm’s director of commercial leasing.
During the third quarter of 2024, four of the 10 largest lease transitions that closed in New York City were on Park Avenue, said Marisha Clinton, a Savills vice president of research. Blackstone, CBRE, Elliott Investment Management and Ares Management re-signed or relocated.
When the pandemic temporarily gutted Midtown office activity — and the rise in hybrid and remote work seemed to point to a secular shift in the workplace — Park Avenue’s industry focus and larger floor plates suggested it would be especially impacted. Instead, Park Avenue’s offices cleared the noise.
“Like I said, people aren’t going anywhere,” said Clinton.
This recent resurgence was kick-started, like the street itself, by transit infrastructure and Grand Central Terminal. The office buildings sit atop train tracks covered in segments before the post-World War II office construction boom, which turned the “filthy and dangerous train ditch” into a busy commercial drag for office workers.
Office space near regional rail became an even more valuable asset after the pandemic. This led to a number of high-profile financial service firms — some of the first companies to go back to the office — signing leases, as well as a migration toward the street from other parts of Midtown. Ares Management added three floors to its 245 Park Avenue lease in July, the same month J.P. Morgan Chase and Hines entered a $300 million contract to acquire 250 Park, adjacent to the bank’s new headquarters, now under construction.
“It’s the institutionalization of a number of smaller hedge funds and asset managers and boutique investment banking scaling up, and all of that comes together on Park Avenue,” said Tighe.
Whereas the nexus of office dealmaking had been heading west toward Hudson Yards since the towers there started opening five years ago, Park Avenue has reasserted its gravitational pull.
“It’s pretty clear that there’s still an elegance that resonates with Park Avenue relative to some of its peers in other parts of the city,” said David Goldstein, Savills’ tri-state president, who spoke while sitting in an office at 399 Park. “We, in essence, skipped a development cycle, so we’re entering this moment of scarcity for A-plus premium product. Park Avenue doesn’t have the newest buildings, but one can argue it has some of the most elegant and refined buildings.”
A tour down the street offers a hint of the frenzy of activity. Irvine Company is spending $200 million renovating 200 Park, where CBRE renewed in July for 180,000 square feet. SL Green is redeveloping 245 Park, where a financial technology firm signed this summer in a deal with an asking rent of $145 a square foot. At 277 Park, the Stahl Organization redid the lobby and added amenities, and Fisher Brothers spent $20 million redoing the lobby at its 299 Park.
The list of nips and tucks goes on: 300 Park, which Colgate-Palmolive master-leases, has been partially redeveloped; 320 Park benefited from a $20 million makeover; 350 Park will undergo significant redevelopment; and WatermanClark and Brookfield Properties dropped $100 million on a renovation of Lever House at 390 Park that wrapped late last year.
Whatever the wave of renovations, Park Avenue’s renewed position of strength seemed to become official in June 2023. That was when SL Green sold half of its stake in 245 Park Avenue to Mori Trust in a deal that valued the building at a very pre-pandemic price of $2 billion. The deal provided a sought-after price point for post-pandemic office space.
“The Mori investment showed there is intrinsic, long-term value recognized by international investors,” said Durels.
And a Midtown East rezoning passed in 2017 continues to offer opportunities for owners and developers to build and capture more of that premium top-floor rental revenue.
There’s already one plan in the works at Vornado’s 350 Park, the site of a future Foster + Partners skyscraper announced in April that will be occupied by Ken Griffin’s Citadel investment houses. A project spokesperson said the current building hasn’t been emptied of tenants, and the development aims to start the city’s land-use review process in 2025.
This development, and others like it, won’t be quick. With the exception of the empty lot on 405-417 Park Avenue, there’s no vacant land for office development on Park in Midtown, so clearing out tenants will take time. Then it can take up to two years to demolish an existing tower, and knocking down and rebuilding anything set on top of railroad tracks creates its own delays and difficulties.
As CBRE’s Tighe lays out, the equation is: Is it better to knock down and build bigger, completely renovate the building so it will lease faster, or end up trying to be the least expensive building on Park Avenue — and thereby always be full? She’s tracking a growing number of buildings beginning to insert demolition clauses into their new leases, because they want optionality.
Others are asking the same questions, too.
“If you look at the age of the buildings, there’s going to come a point where, if the buildings don’t do something, and maybe it includes adding new space, you can’t occupy them, because it’s just too old,” said Moinian’s Berger. “But there is data now that shows, well, if we do this, look at what we can achieve.”
