Manhattan’s Top Class B Office Buildings Face a Space Crunch

Could it actually happen? Could Manhattan run out of quality Class B office space? 

It’s long been agreed that America’s premier office market is running low on Class A space, thanks to the so-called flight to quality everybody goes on about. Now it looks like the buildings just below in terms of age, location and amenities — call them B-plus/A-minus buildings — might be filling up for years to come.

“I would say one-third of our properties are 100 percent rented,” said Jeff Buslik, an executive managing director at Adams & Company, a brokerage with 36 Class B buildings under its purview. 

Fellow Adams & Company executive David Levy chimed in: “With demand for more space than we can accommodate.” 

Newer Class A trophy towers such as One Vanderbilt and 425 Park Avenue are effectively 100 percent leased, and there is little in the way of new product under construction. Roughly 3.5 million square feet of new office space is expected to come online in Manhattan between now and 2030, per numbers from brokerage CBRE. Much of that is Class A and much is already spoken for — such as J.P. Morgan Chase’s future headquarters at the under-construction 270 Park Avenue. 

Tenants signed nearly 8 million square feet of leases overall in the first three months of 2025, according to CBRE. Such demand suggests that the spillover from a tighter Class A market means more activity for Class B. There’s not much new supply there either — these are the older, less flashier buildings that aren’t necessarily shiny steel and glass. If anything, Class B supply is dwindling amid millions of square feet of office-to-residential conversions. 

“There’s a confluence of events going on,” said Michael Cohen, a managing principal at owner Williams Equities and president of brokerage Colliers’ New York tri-state practice. “There’s a diminished pool of B buildings as conversions occur. There’s also a diminished pool because of certain buildings whose financial circumstances don’t permit them to transact. But, I do think if we’re looking for an explanation, the simplest explanation is just recovery through demand for Class B.”

To be clear: No one Commercial Observer talked to and no data suggests that Manhattan will run out of office space. The borough’s overall availability rate — a measure of vacant and soon-to-be-vacant space — stood at around 18 percent on April 1, according to various reports. Plus, the Manhattan market, which by last spring had about 600 million square feet of office space, still has a ways to go to consistently best its pre-pandemic leasing performance. 

However, headwinds are plainly bunching behind Class B’s back, suggesting a scramble for such space that would’ve been unthinkable amid the requiems intoned for in-office work in 2021, 2022 and even 2023. Recent statistics underscore the scramble. 

Class B leasing volume in the first quarter of 2025 ran almost 25 percent ahead of its 10-year quarterly average of 1.81 million square feet, according to Colliers. Also, the Class B leasing totals for the third quarter of 2024 and this past quarter both topped 2 million feet — the first time since the start of the pandemic that Class B leasing crested that figure two out of three consecutive quarters. 

And availability in the niche has been trending downward for nearly a year, according to Colliers. The volume of space available for sublease has been shrinking more dramatically: eight straight quarters of decline, to 3.33 million feet, the lowest since July 2020, Colliers said. 

Behind these statistics are a number of sizable Class B leases by prominent tenants. These have included WeWork signing for 303,741 square feet at 330 West 34th Street in December on behalf of Amazon — a deal that Cohen described as “the canary” for the trend of renewed Class B strength.

The canary formed a flock in 2025. The Roman Catholic Archdiocese of New York consolidated in 142,308 square feet at 488 Madison Avenue in January. The same month, IBM expanded by 92,663 square feet for 15 years at One Madison Avenue, an older building that SL Green repositioned to compete with Class A space — a milieu it knows well, having developed One Vanderbilt. The IBM deal helped bring One Madison to around 75 percent leased within months of its September reopening, and underscored the role that older properties played in SL Green’s leasing performance of late. The company rented out 3.6 million square feet last year.  

“Definitionally, all of that leasing took place in buildings that were anywhere between 25, 50, 100 years old,” Marc Holliday, SL Green’s chairman and CEO, said in a CO interview for a separate story. He referred to such properties as “the core of our entire portfolio.” 

More Class B leases followed those January deals. A&E Television Networks renewed its 151,920 square feet at 227 East 45th Street the following month. Also in February, Capital One expanded by 96,606 square feet at 114 Fifth Avenue. Horizon Media extended its 360,000-square-foot footprint at 75 Varick Street for 17 years the month after that. And, at the start of April, law firm Goodwin Procter finalized its relocation from the 18-year-old, glass-and-steel 620 Eighth Avenue to 250,000 square feet for 20 years at 200 Fifth Avenue, a 116-year-old building made mostly of cast iron and terra cotta. 

There were several smaller leases, too, running to as low as a few thousand square feet to tens of thousands — BuzzFeed’s 42,210 square feet at 50 West 23rd Street in March, for example — and stretching back through the second half of 2024. All of it occurred against a backdrop of dwindling Class B — and Class A — supply and a more bullish demand for space. 

The New York City Council in December approved the City of Yes rezoning overhaul, which includes incentives for converting office buildings into residences. Earlier in 2024, state lawmakers carved a section called 467-m into the tax code to incentivize the same sorts of conversions so long as they included an affordable housing component. 

Most conversions since the pandemic’s start have involved older, non-Class A buildings outside of Midtown. More than 6.5 million square feet of office was converted from the start of the pandemic to last fall, per brokerage reports. When pending or planned conversions are included, the current figure stretches a few times past that volume.   

The conversions, too, don’t simply further erode the Class B supply. They also push tenants into the market to compete for a bit of the remaining space. On average, for every 1 million-square-foot building slated for conversion, about 27 percent of that building’s rentable square footage includes tenant relocations to other buildings, according to Franklin Wallach, a Colliers executive managing director who heads its research and business development. 

At the same time, one company after another, big and small, over the past several months called its workers back to the office more days per week. (Amazon might have sparked the latest return-to-office push with its September announcement calling workers back five days a week.) That in part explains the decline in space available for sublease. Sublandlords — the tenants that would have done the subletting — are staying put, Wallach said. 

Also, it comes down to dollars and cents: Class B space is less expensive to rent than Class A, sometimes decidedly so. The difference between the average Class A and average Class B asking rents in the first quarter of 2025 was nearly $20 a square foot, Colliers reported. In Midtown South, an area that Class B space dominates, the difference was nearly $25 a foot. 

Those lower prices can hurt owners’ bottom lines, since they’re having to do their parts to close these Class B deals.

“We certainly weren’t furnishing spaces pre-COVID,” said Grant Greenspan, a principal at Kaufman Leasing Company, who has arranged myriad smaller leases recently at Class B properties such as 875 Sixth Avenue, 56 West 22nd Street and 15 West 27th Street. 

Most tenants were technology and creative firms accustomed to turnkey spaces, Greenspan said. Many were coming out of coworking environments where the nuts and bolts of office life — desks, chairs, power sources, the coffee maker — were set out for them before they arrived. Greenspan said such furnishing can add $20 a square foot to the owners’ cost in any lease. 

“The bitter pill of the B building is that it costs roughly just as much to build space in a B building as it does in an A building,” Cohen said. “And the tenant improvement allowances are comparable, but the rents are considerably lower. So that presents a challenge for all but the most financially sound B building owners.”

For now, it looks like buildouts and other sweeteners are a given. Should the supply of Class B-plus/A-minus space shrink further, however, things might tilt more toward an advantage for owners. And the stats and the deals suggest the supply might indeed shrink, with the only threats to the trend lines coming from macroeconomic events that spark higher unemployment, or an even harsher financing climate, such as the trade war or a potential recession.  

These, and one more threat very specific to Class B space given the omnipresence of tech tenants: a downturn in the tech sector (again, probably due to macro trends). A decline in venture capital funding would be the canary for that threat. VC funding seems healthy, having come off its third-highest annual total in 20 years in 2024, according to a report from accountancy KPMG. A decline — coupled perhaps with a recession that knocks out demand for products like apps — and tech firms won’t be so sure anymore of an exit event like an initial public offering or a merger with a larger firm. That, in turn, means no need for more space for growth. 

“If that sort of transparency gets clouded,” Greenspan said, “that’s where there’s a possibility of a slowdown.”

Tom Acitelli can be reached at tacitelli@commercialobserver.com.