A Change In Fortunes May Be Afoot For Third Avenue Office Owners

In the years following the pandemic, Third Avenue in Manhattan was widely seen as the epitome of the city’s washed-up, obsolete office stock. But some believe that era could be coming to an end.

The city's office market is at its healthiest point since 2019, but much of that recovery has been concentrated in the prime assets along Park Avenue and around Hudson Yards. With availability dwindling in the most sought-after buildings, Class-A properties along Third Avenue are starting to draw more interest than they have in five years.

“I don't know if I can go as far as to say that this is a coveted address,” said Andrew Lim, JLL director of New York office research. “I think for the health overall of the office market on Third, things look much more positive now than they did even a year ago.” 

More than 21% of office space on Third Avenue is vacant, according to JLL, still well above the 15.8% citywide average but vastly improved from the corridor's vacancy rate of roughly 29% in late 2022. The tightening is being driven by proposed residential conversions removing space from the market and spillover demand as other corridors in Midtown fill up.

Of the 1.7M SF of leasing activity on the corridor last year, almost 1M SF came from Bloomberg's renewal at SL Green's 919 Third Ave. But market watchers say this year will be even bigger: Tenants signed 418K SF of office leases on Third Avenue in the first three months of 2025, nearly double the total from a year ago, according to JLL. 

Most recently, law firm Kirkland & Ellis last month took 131K SF at 900 Third Ave., Bisnow first reported. It needs the extra space to grow from its 400K SF New York headquarters down the street at 601 Lexington Ave., a BXP-owned building that is nearly full.

“There's a plethora of opportunities on Third Avenue, with amenities, with quality landlords that are financially stable,” said Savills Vice Chairman Jeffrey Peck, who added that he is taking prospective tenants on tours of Third Avenue space daily.

Its renewed allure is a rapid turnaround from the corridor's reputation in 2022, which Manhattan office brokers described as “leave-behind space.” The corridor's amenity-light, decades-old buildings were unable to compete with trophy towers to sign tenants hoping to lure hybrid workers back to the office.

“Third Avenue, probably because of the age of some of the properties, has probably been hit a little harder than some other avenues,” Durst Organization Executive Vice President of Commercial Leasing Tom Bow said.

It still isn't close to on par with Park Avenue and Hudson Yards, where some landlords are commanding rents north of $200 per SF. But space in the most coveted buildings is dwindling fast: Trophy availability in Midtown dropped below 8% in the first quarter, down from nearly 15% a year ago, according to Savills.

“There's been a flight to quality, and one of the biggest beneficiaries of that has been Park Avenue and Bryant Park — the newly renovated buildings and the newly constructed buildings,” JLL Vice Chairman Paul Glickman said. “As that market tightens and there's not as much availability, Third Avenue is becoming the beneficiary of some of that demand.”

The Durst Organization, one of the biggest owners of Third Avenue towers, has begun to reap the rewards of upgrading its space and is commanding some of the highest office rents along the corridor. It spent $150M renovating 825 Third Ave. after Random House's parent company vacated the 530K SF, 40-story tower. Durst is now commanding asking rents from $78 per SF in the building’s base to $98 per SF on its top floors.

The first tenants moved in late in 2022, and the building is now 50% leased, Bow said. Financial services provider Edward Jones took 8K SF last year, and Stark Office Suites took 12K SF in February, paying $84 per SF, according to JLL.

The building is “a great example of a gut-renovated building that does compete with new construction,” Colliers Executive Managing Director of Research and Business Development Franklin Wallach said.

But for the most part, Third Avenue is still a discount play. Average asking rents on the corridor are $69.39 per SF, according to Colliers, and nonprofits especially have been attracted to the cost benefit. 

“There's still plenty of good-quality office space left, and there is a real attraction for nonprofits to take advantage of those opportunities, particularly those that are near Grand Central,” Open Impact Real Estate co-founder Lindsay Ornstein said.

But it isn't just nonprofits that are looking for cheaper rents: 58.9% of the tenants that have signed for office space along Third over the past five quarters are classified as financial, legal or business services tenants, according to JLL.

While Wall Street's big boppers believe they have to be on Park or Madison Avenues, that isn't true for the vast majority of businesses. 

“The other 95% of companies out there are saying, ‘If I create spectacular space within the building, why not pay in the $50s and $60s per SF and put the money in?’” Peck said.

The biggest factor driving down Third Avenue's availability rate is the removal of offices from the supply altogether. The towers at 675, 750, 767 and 830 Third Ave. have all been earmarked for conversion. SL Green alone plans to spend more than $800M converting 750 Third into 639 apartments. 

Planned conversions are expected to remove 2M SF of office space from the avenue's 17M SF inventory, or nearly 12%.

“That's taking quite a bit of supply off the market, which is a very good thing, because it's mostly dated supply,” Ornstein said.

But even those projects, coupled with spillover demand from Park and Lexington, aren't seen as guarantees for heralding a turnaround.

“There's definitely activity, meaning showings, meaning proposals back and forth,” Peck said. “But you can't point to any substantial deals of size that are impacting the availability rate in a meaningful way.”