Third Ave — A Bellwether for the Future of Manhattan’s Office Market

In many ways, the section of Third Avenue between East 40th and 59th Streets has become “a kind of microcosm of the Manhattan market, where all of the different strategies are being played out in this one corridor,” but can be seen in many areas of the office market. Unlike nearby Sixth and Park Avenues, where the average availability rates are 11% to 12% respectively, the availability rate on Third Avenue is significantly higher at over 20%. Third Avenue office owners are trying a wide variety of strategies to avoid default, foreclosure, or handing a building to the lender including, expensive renovations to entice tenants; residential conversions; pivoting to niche markets, such as health care or government tenants due to the corridor’s proximity to the United Nation’s headquarters; and embracing the corridor’s historical strategy of being a ‘value play corridor’ and offering lower rents compared to its neighboring avenues. Some cited examples are the Durst Organization’s recent completion of a $150 million renovation of 825 Third Avenue helping to lease an entire floor to solar developer Dimension Renewable Energy earlier this year at an asking rent of $88 per square foot; SL Green Realty’s announcement of office-to-residential conversion plans for 750 Third Avenue; and the surprise move by Memorial Sloan-Kettering’s purchase of half of the Lipstick Building at 885 Third Avenue to serve as a major hub for its administrative and research staff.