Time Inc.’s announcement last week that it would leave its namesake tower on Sixth Avenue for downtown looked like more evidence of troubles for the neighborhood’s commercial real estate.
About 18 months ago, some foresaw weakness for Sixth Avenue when tenants either opted to leave or shrink their footprints, moving large amounts of space onto the market. Adding to the competitive landscape were towers rising downtown and others planned for the far West Side.
But concerns for Sixth Avenue, also known as Avenue of the Americas, have ebbed for many; several large leases have been signed, and the number of cheaper subleases available in the area has decreased. The availability rate of office space for the Sixth Avenue and Rockefeller Center area dropped in the first quarter to 11.1% from 13.7% a year ago, according to CBRE Group Inc., CBG +0.94% a real estate services firm. Average asking rents have risen to $80.93 a square foot in the first quarter, up from $75.56.
“The market has really turned around from the stories that were being written about it a year ago,” said William Elder, executive vice president of RXR Realty, which owns buildings in the Sixth Avenue corridor. “A lot of the space that was being delivered to the market was subsequently leased.”
Last month, law firm White & Case LLP signed a deal to take 440,000 square feet at 1221 Avenue of the Americas, a few blocks up from its current location on the avenue. Investment firm Neuberger Berman signed a lease to relocate its headquarters from Third Avenue to 355,000 square feet at 1290 Avenue of the Americas.
Many landlords are spending money to attract more tenants, renovating their buildings with open-space and loft-style designs. The Avenue of the Americas Association, which describes itself as a civic improvement group, has launched a campaign of print advertisements and events to promote the area as a place to work and play—and not simply a 9-to-5 office district.
“We wanted to put together a campaign that highlights the cool and dynamic restaurants that go beyond the traditional working hours and late into the night and weekends,” said Peter Brindley, vice president of leasing at Paramount Group Inc., a real-estate firm, and a board member of the association. “Sounds silly to be talking about Midtown that way, but what I think these companies want is an ecosystem that allows them to congregate beyond the typical working hours.”
Forecasters in 2012 described Sixth Avenue as “the next soft submarket” and said “availability [rates] could reach north of 17%,” said Richard Persichetti, vice president of research, marketing and consulting for real estate services firm Cassidy Turley. “And that hasn’t happened.”
Even so, Sixth Avenue faces several challenges. The large financial and media tenants that typically have populated the corridor’s large buildings are looking for smaller spaces and less expensive rents, said M. Myers Mermel, chief executive officer of Tenantwise Inc., a real estate services and advisory company. The technology sector, a growth engine in the city, still only has a handful of mature companies, he said.
“We have a lot of younger tech companies,” Mr. Mermel said. “They can’t afford Midtown rents.”
Meanwhile, building owners tout their sprawling floor sizes and the proximity to transportation hubs such as Grand Central, Penn Station and the Port Authority bus terminal.
There is a “limited amount of contiguous blocks [of space] above 250,000 and 300,000 square feet in Midtown, where you can actually go visit and walk the product now,” said Mr. Elder of RXR Realty, which is about to embark on an overhaul of 75 Rockefeller Center. He added, “There are a lot of big tenants looking for that kind of space.”
BBDO, an advertising agency that has been at 1285 Avenue of the Americas since the 1980s, considered a move to TriBeCa or Chelsea.
While it coveted a downtown aesthetic, the firm decided it liked its building’s large floor sizes and central location. So it commissioned an update of its office by design firm HLW International LLP.
“The chairman of AT&T has to come in here and say this is a great, cool space, but so does the 27-year-old art director with tattoos who comes to work on his bicycle,” said David Lubars, world-wide chief creative officer for BBDO.
HLW’s designers removed the trappings in style 20 years ago—low ceilings and a cubicle farm surrounded by offices along the windows, said John Mack, senior partner at HLW. The firm opened up the space using a benching-system of tables clad in reclaimed wood.
Sixth Avenue also has lured restaurateurs from trendy neighborhoods such as NoHo and the Meatpacking District. Butter—its executive chef, Alex Guarnaschelli, is a regular on the Food Network’s “Iron Chef America”—opened its second location just off Sixth Avenue on West 45th Street. The Metric, a company with restaurants in the Meatpacking District, opened the Wayfarer at West 57th Street and Sixth Avenue.
“New York itself is changing,” said Lisle Richards, a partner at the Metric.
Hotel and residential development on West 57th Street also has helped change the area, he said.
“Downtown is becoming uptown, and uptown has a touch of downtown these days.”
Published: June 2, 2014
Filed Under: Community Relations
The RXR platform manages 72 commercial real estate properties and investments with an aggregate gross asset value of approximately $17.7 billion, comprising approximately 23.1 million square feet of commercial operating properties and approximately 6,300 multi-family and for sale units in various stages of development in the New York Metropolitan area. Gross asset value compiled by RXR Realty in accordance with company fair value measurement policy and is comprised of capital invested by RXR and its partners, as well as leverage.