Park Avenue gets pounded

<i>Former house of financial giants sees bigger rent drop than any other submarket</i>

277 Park Avenue and 299 Park Avenue
If the last 12 months have served as a humbling recalibration of the entire U.S. economy, then there is perhaps no urban office district more representative of America’s fall from opulence than the commercial stretch along Park Avenue in Midtown.

For decades, it was the province of the financial titans, including JPMorgan, Lehman Brothers and UBS, whose paychecks and egos were matched, in part, by Park Avenue’s astronomical asking rents in its premier buildings.

But now, much like its former white-gloved denizens, Park Avenue is an empty shell of its former self.

The Park Avenue submarket — which runs from Grand Central to 59th Street — has fallen harder and faster than any other Manhattan submarket over the past 12 months.

According to Cushman & Wakefield, from October 2008 to October 2009, average asking rents dropped 34.7 percent, from $108.57 per square foot to $70.85 per square foot. By comparison, overall asking rents in Manhattan fell 22 percent during the same period.

Park Avenue was hobbled by its high pre-crash rents. While the average asking rent was just over $108 per square foot about a year ago, it had swelled at the height of the market to almost $175 per square foot in some of the submarket’s trophy buildings.

Now, however, for some of the shorter-term subleases signed in recent months, asking rents are in the high $40- and low $50-per-square-foot range, according to a number of brokers.

“Park Avenue had the furthest to drop,” said Newmark Knight Frank’s Peter Shimkin, who oversees leasing at 450 Park Avenue. “Rents were so high in ’07 and ’08 — at an all-time high — so when there was a correction, [they] had a lot more room to drop when the economic crisis hit.”

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CB Richard Ellis executive vice president Peter Turchin, who oversees leasing at 399 Park, which has seen an uptick in leasing activity in the last 30 days, added: “If you are looking at it historically, Park had the highest rate of increase in asking rents in the 2006 and 2007 period.

“All the ships that were floating were equally high, and then the tide dropped. It was doing much better than other segments, and so that history is an important component as to where we are now.”

To grasp the turnaround in this district, one needs only to look at a handful of buildings. At 277 Park Avenue, JPMorgan Chase previously leased 1.3 million square feet. Now, 370,000 square feet are vacant, with an additional 90,000 square feet set to hit the market in the coming months as the financial firm transitions itself to the old Bear Stearns headquarters at 383 Madison Avenue, according to data research firm CoStar.

Swiss bank UBS, meanwhile, is in the process of relinquishing its old footprint at 299 Park, subletting 30,000 square feet. The building currently has over 100,000 square feet of sublease space available.

According to CoStar, the total amount of combined, currently vacant sublease space on Park Avenue at the addresses 277, 299, 320, 345, 350 and 399 Park is 776,000 square feet, and the amount of available sublease space, defined as space set to hit the market in the coming quarter, is just over 1.5 million square feet.

Brokers and landlords are incorporating a number of tools to adapt, Shimkin said. Whereas previously he was seeking tenants to enter into leases of seven to 10 years, in some cases, Shimkin said he is now settling for leases of just three years to weather the downturn.

Like other submarkets, free rent and build-outs are two common incentives offered to help draw in tenants.

For now, the prospect of Park Avenue regaining its gilded luster seems far off. On the plus side, though, CBRE data shows Park Avenue was one of only four submarkets in Midtown to see an increase in asking rent since May. The jump, however, was small — just a $0.28 per square foot increase, to $64.08.

Both Shimkin and Turchin said a recovery on the stretch depends on financial firms seeing improvement and pulling some of their current sublease space off the market.