February 2025 Newsletter

Manhattan Office Market Update: Stabilization, But No Quick Recovery | 

The Manhattan office market is showing clear signs of stabilization, with leasing activity up 25% year-over-year and availability rates declining at a record pace. After five consecutive quarters of negative absorption (more space coming vacant than leased), the past two quarters have seen over 2 million square feet of positive demand—a strong signal that tenants are re-engaging.

And there’s been no shortage of chatter chatter about the return-to-office push (#JamieDiamonRant)

Much of this activity is driven by the usual suspects, FIRE & TAMI, industries with premium paying tenants favoring recently built or renovated buildings near major transit hubs. Buildings proximal to transportation hubs in the Grand Central & Penn Plaza submarkets, as well in the Park Avenue corridor, are seeing occupancy levels  near pre-pandemic levels as the “flight to quality” story remains dominant.

Anecdotally, in the last 60 days, we were notified by Midtown Landlords on 3-separate occasions that they were increasing building-wide asking rents due to the velocity of demand they were seeing. However, despite these pockets of momentum, the market is far from a full recovery; over 40 million square feet remains available, 30% higher than pre-pandemic levels.

And the biggest challenge?

60% of available space sits in older buildings that haven’t been renovated in over a decade. For these buildings, the market isn’t strong enough yet for Midtown's “spillover” office space to clear at a transactable price for Landlords; which in turn suppresses capital investment for building upgrades.

Office-to-residential conversions are still being announced (675 Third, Pfizer Building), although we don’t expect this movement to have a significant overall impact on vacancy in the near term. 

Looking ahead, we expect an incremental tightening in asking rents, and eventually concessions +TI packages, as landlords still work to fill space.

Bottom line
The worst seems to be behind us as our Client space surveys today, relative to 18-months ago, show fewer options and increasing rents, forcing us to be more creative and opportunistic in seeking out special situational opportunities for our clients.

Until next month,
Ben

Ben Blumenthal
Principal Broker | Noah & Co.

For the rest of our February 2025 Newsletter, click here.