Did Downtown Miss Out on Manhattan’s Office Market Recovery?

By most metrics, you couldn’t ask for a stronger, more dominant statement of recovery for the office sector in New York City than Manhattan’s 2024.

With leasing activity at 33.3 million square feet for the year that included 10.2 million in the fourth quarter alone — the borough’s strongest leasing quarter in five years — everything about the asset class in Manhattan seems poised for an unquestionably dominant 2025.

But a look at the island by submarket shows that Manhattan’s flight to prosperity goes only so far. Like an Upper East Side grande dame of old, the office recovery considers Downtown anathema.

According to a year-end report by the Alliance For Downtown New York, a business improvement district, “Lower Manhattan’s office market experienced its weakest leasing activity on record, with only 2.24 million square feet leased — a 21 percent decline from 2023.”

Contrast this with the laurels longtime market leader Midtown collected in 2024. That included its heftiest leasing volume since 2018, with 6.3 million square feet in the fourth quarter alone, according to Colliers research.

While there are several reasons for Downtown’s doldrums, the most obvious and impactful is that the area lacks the supply of luxury-attuned Class A office space most in demand by today’s corporate occupiers. The area also lacks a surplus of available land ripe for development. 

“There’s very little new construction Downtown,” said Lori Albert, director of tri-state research for Cushman & Wakefield (CWK). “Of 67 [Manhattan] buildings that were completed since 2017, only six were completed Downtown.”

Albert also notes that Midtown’s office stock is more conducive to conversion to Class A office.

“In Midtown, 78 percent of the inventory in terms of square footage is Class A, whereas it’s only 53 percent Downtown,” said Albert.

Michael Joseph, a vice chair at Colliers (CIGI) in New York, notes that Downtown has always been the “stepchild” of Manhattan.

“Downtown is the least convenient place to go. It has the least amount of energy. The doors roll down at 6 o’clock,” said Joseph. “As much as it’s still trying to become a 24-hour community — and it has gotten better — it still does not have the energy that you have in Midtown for lifestyle, restaurants and just general culture. It’s always been a place where Wall Street thrived, then people would go home.”

Part of the neighborhood’s challenge comes from its status as the oldest section of New York City.

Downtown Manhattan contains many of the city’s oldest office buildings, which are more likely to have smaller floor plates and fewer desirable features than the newer Class A office product found throughout Midtown.

If there were to be any advantage to Downtown’s older office stock, it would be the area’s traditional price difference. Downtown rents still hover in an affordable range, with the average asking rent for office at the end of 2024 at $55.54 a square foot, according to the Downtown Alliance.

“There’s endless supply where you can rent space in the high $30s or mid-$40s,” said Joseph of the rent per square foot. “Then there are a handful of nicely located buildings on Broadway where you’ll see rent into the $50s and low $60s. And then the Trade Center is achieving much higher rent. Steel and glass is a totally different type of product. But we’re really not seeing any major bumps Downtown like you’re seeing in Midtown.”

But, given the expectations for cheaper rent, certain pandemic-related factors have resulted in sections of Midtown that come close to competing on price with Downtown office properties.

Franklin Wallach, executive managing director for New York research and business development at Colliers, notes that post-pandemic, as Midtown was becoming more desirable for millennials seeking shorter commutes from the suburbs — particularly due to the exodus from the submarket due to remote work — leasing prices throughout certain areas of Midtown dropped, reducing Downtown’s long-standing cost differential.

“Post-2020, competitively priced pockets of Midtown were beginning to compete with the competitively priced areas of Downtown,” said Wallach, noting that Third Avenue in particular was taking a hatchet to Downtown’s automatic steep price advantage for office leases.

“Third Avenue is the discounted corridor of that market,” said Wallach. “The asking rent on Third Avenue is mid-$60s, while the current asking rent in the Financial District is mid-$50s. That’s not insignificant, but 15 or 20 years ago there would’ve been closer to a 40 to 50 percent discount between the Financial District and Midtown. Now, we’re seeing that narrow.”

Despite Downtown’s relative affordability, the unsuitability of the area’s older office product has made much of it ripe for office-to-residential conversions, and activity in that space has been barreling forward.

Lower Manhattan saw almost 3 million feet of office space exit the market in 2024 due to office-to-residential conversions — the highest among Manhattan’s submarkets — with 222 Broadway, 80 Pine Street and 111 Wall Street totaling 2.15 million square feet of that.

“Even though Downtown had the lowest yearly leasing volume in 2024, the availability rate in Downtown tightened for three consecutive quarters,” said Wallach. “And, the overall supply was cut by one-tenth in 2024, primarily because of the millions of square feet removed from availability for planned conversions.”

Reed Hatcher, a senior research manager at Cushman & Wakefield, noted the gathering momentum in office-to-
residential conversions Downtown.

“We’re currently tracking 10 projects Downtown that are either in the process of conversion to residential, or where the owner has expressed interest in such a conversion,” Hatcher said. “That amounts to 6.5 million square feet. And, of those 10 projects, seven have been announced in the past year. So that’s a trend that’s gaining momentum.”

So while conversions have been a boon for housing availability as well as office absorption figures — 1.13 million square feet of newly available space was spoken for Downtown in 2024 — the decrease in available space has caused occupiers to seek their ideal space elsewhere.

It’s also worth noting that much of the Downtown occupier base over the past decade has been tech-focused. That tech industry has been less adamant about return-to-office than other industries such as finance, which has largely flocked to the luxury properties popping up throughout Midtown and Midtown South.

“A lot of creative firms moved down from Midtown South when they got priced out, but the TAMI sector have been the last group of industries to go back to the office, and they’re still fighting it. A lot of those people live in Brooklyn,” said Joseph, using the industry acronym for technology, advertising, media and information firms. “When we see the TAMI world come back full steam, that will help Downtown get revitalized a bit.”

Despite all this, there have been pockets of good news for the Downtown office market.

In addition to tech, media and service firms, companies within the nonprofit sector tend to seek out Downtown office space.

“We had a couple of big leases in the fourth quarter in the not-for-profit sector, including Catholic Charities and Success Academy,” said Jessica Lappin, president of the Downtown Alliance. “We have traditionally been attractive to the not-for-profit sector, and clearly to government because of our proximity to City Hall. I think you’re going to start to see even more of that as there is less availability in Midtown and people start to look further south again.”

In November 2023, Success Academy Charter Schools, the city’s largest charter school chain, signed an expansion and renewal for 94,000 square feet over three floors and part of a fourth at 120 Wall Street, for an asking rent reportedly in the mid- to high $60s per square foot. In September 2024, Catholic Charities of the Archdiocese of New York signed a 30-year lease expanding its headquarters to 77,130 square feet over three floors at 80 Maiden Lane.

Last year also saw law firm Freshfields Bruckhaus Deringer open its 180,000-square-foot office over floors 51 through 54 at 3 World Trade Center, in a deal completed in 2022. In its announcement about the move, the company praised the vibrancy of the neighborhood, calling it a “prime location.”

Marisha Clinton, vice president for research in the East out of Savills’ New York office, calls the Downtown office market “down but not out,” noting that 2025 is already off to a stronger start for the submarket.

“The fourth quarter of last year was low, but, starting out this year, things are looking up,” said Clinton. “Last quarter, things were low because of that flight to quality, as most of the best-of-the-best buildings are located in Midtown. But when opportunities do come up, people move forward to take advantage of those small opportunities in the Downtown market.”

Clinton mentioned several recent deals, including the just-announced, not-so-small (to say the least!) renewal and expansion for Jane Street Capital at 250 Vesey Street at Brookfield Place, which will find the trading company growing from around 600,000 square feet to almost 1 million feet there. Then there’s the perpetually in-redevelopment 2 World Trade Center, which now reportedly has American Express expressing interest in coming in as the building’s anchor tenant.

(Hatcher said that the World Trade Center submarket has a vacancy rate of just 9.7 percent.)

And, just this month, Colliers announced that the Trinity Centre, which includes 111 and 115 Broadway, had signed more than 70,000 square feet of leases over the past 12 months, bringing the buildings to 90 and 80 percent capacity, respectively.

Clinton cited another reason for optimism in the submarket in the Economic Development Corporation’s Manhattan Commercial Revitalization program, known as M-CORE. The program “provides owners of commercial office buildings with a range of tax benefits to support transformative renovations of office buildings located in Manhattan south of 59th Street,” according to the agency’s website.

One of the first two recipients of M-CORE funding, announced in January 2024, was 175 Water Street, also known as the Water Street Associates Building. The building, given a complete interior renovation, is due to feature almost 150,000 square feet of amenity and maker space in addition to 425,000 square feet of office space, in hopes of attracting tenants in fashion, arts, creative and technology fields.

Colliers’ Joseph said that for some corporate tenants, there is a knee-jerk aversion to Downtown that can be overcome with enough persuasion and exposure to the area.

“When you meet a tenant and they go, ‘Where are the good deals?’ You tell them, ‘Downtown or the Garment Center,’ and they go, ‘Oh no, we don’t want to be in any one of those places,’ ” said Joseph. “That’s usually the first answer you hear. But once they get down there, they see that there’s some great things about the Downtown area, including a lot of culture and history.”

Downtown Alliance’s Lappin believes that while the area can’t provide the level of Class A luxury product that’s available farther uptown, this scarcity will become less of a factor in the years to come.

“As we see more and more buildings convert to residential and less availability of that space in Midtown, I think we will start to see a rebound,” said Lappin.

Given all this, Lappin references the thriving Downtown of more than five years back to conclude that the area’s fundamentals are strong, and that Downtown will eventually evolve past the disruptions of COVID to thrive once again.

“I look to how we were doing in 2019 when the neighborhood was booming,” said Lappin. “Our fundamentals haven’t changed. The safety and vibrancy in the neighborhood, the waterfront views, the transit access — that’s all the same today as it was before and will be in the future. Those are things that are attractive to companies. And then this very large and growing residential market, where people have the ability to walk to work and send their kids to good schools. I think it all feeds on itself in a positive way.”