New York’s Office Market Will Never Be the Same, and That’s Fine

When it comes to top-flight office product, has New York City been a bit too impressed with its own greatness to properly innovate?

This was one possibility dropped during a day of in-depth discussions, optimistic projections and the occasional hard truth at Commercial Observer’s “New York State of Office Forum,” which was held at RXR’s Starrett-Lehigh Building on May 15.

“New York City, for the last 50 years or maybe even longer, coasted on the fact that it was the global financial center in terms of investment in its office inventory,” said Hilary Spann, executive vice president for the New York region for BXP. “If you go to other major global markets like Hong Kong, Tokyo or Singapore, the office inventory is newer, it’s more amenitized — it’s just nicer.”

This comment, during a panel on the latest in office and capital markets outcomes, reiterated that at a time when Class A properties are dominating the market, there might be conflicting ideas about the differentiating factors between Classes A, B and beyond. 

(On a later panel, Eric Engelhardt, senior vice president of commercial leasing for The Durst Organization, reinforced this by reminding the assemblage that “Class A” once meant that a building had air conditioning.)

Commercial Observer Editor in Chief Max Gross’s introductory remarks kicked off the event on a positive note.

“If there is any sector or industry that has had to weather its share of twists and turns this decade, it has been office. But today is a very different story compared to when we hosted this event last year,” said Gross. “Recently, the market is looking brighter, signified by positive investor sentiment and strong demand, occupancy, and leases.”

This was followed by the first of two fireside chats — between Elizabeth Hart, president of leasing for North America at Newmark, and Sujohn Sarkar, managing director of asset management at owner Trinity Church NYC.

Sarkar made a key point that would be reiterated throughout the event and that said so much about the current state of New York City that everyone here should be shouting it from the rooftops: New York City, despite much public naysaying of late, is not only still extremely popular and well-coveted as a place to live, but it might be a more magnetic destination than ever before for young strivers seeking to begin a lucrative career. 

“In speaking with heads of real estate for organizations with, like, 10,000 to 20,000 employees in New York City, they do a lot of employee surveys,” said Sarkar. “For every one of those, New York City is at or near the top.”

(In 2024, New York City added more new residents than any other city in the U.S. by far, more than  doubling the total of the No. 2 city, Houston, according to Axios.)

After the office/capital markets panel — which featured Spann; Neil Gupta, president and chief investment officer at owner Rudin; Drew Isaacson, senior managing director at JLL; and panel moderator Meyer Mintz, tax partner at Citrin Cooperman Advisors — the next panel continued the discussion of New York and the office sector as magnets for top talent in critical industries. 

The panel’s moderator, Suri Kasirer, president of lobbying firm Kasirer LLC, kicked off the discussion by reinforcing how the city is in a “really interesting period of growth.”

“New York City in 2024 experienced the lowest level of domestic out-migration in a decade,” said Kasirer, quoting a statistic from the New York City Economic Development Corporation (NYCEDC). “Everybody keeps talking about how everybody’s moving out of New York. In fact, in 2024, we did not see that. The city is attracting a tremendous amount of young talent. In 2024, nearly 500,000 recent college graduates chose to live in New York. That’s a staggering number.”

The panel also featured Daniel Clark, vice president and director of business development at NYCEDC; Luke Robinson, regional president of North America for WeWork; and Gabe Marans, vice chairman at Savills.

In addition to discussing the importance of young professionals to New York office, the panel touched on the prominence of AI companies in the city’s current tech landscape, and how the employees of these companies are primarily working in-office.

“The world wasn’t thinking of New York as an AI hub maybe three, four years ago — that has completely changed,” said Clark. “We’re the No. 2 AI hub in the world. We have 40,000 employees working in this space and 87,000 recent college graduates that have been trained for AI. There are 2,000 AI startups in the city.”

While New York is still far behind the No. 1 AI metro, the San Francisco Bay Area, New York is differentiating itself in the space by calling itself “the Applied AI Capital of the World,” per NYCEDC.

“Once systems are created, companies come to New York to apply them and put them to work across industries,” said Clark. “We have finance, we have media, we have every industry. And this is where you go to put your product to work today.”

AI is not the only technology poised to take New York City by storm. Marans said that the city is also currently becoming a hot spot for crypto.

“You will be publishing a lot of headlines about crypto over the next year or so, that New York is the hub for it,” said Marans, who was basing this in part on activity he’s seeing from Savills’ clients. “You’re going to start seeing elements of that within major institutional players. It’s not just startups. It’s also major players who are incorporating elements of blockchain and crypto into their offerings.”

This panel was followed by the day’s second fireside chat, featuring Scott Rechler, chairman and CEO at owner RXR, and Jonathan Mechanic, chairman of the real estate department and partner at Fried Frank.

Rechler spoke about his satisfaction with the current state of the post-COVID office market.

“I’ve been surprised at how fast the New York office market has rebounded,” said Rechler. “Companies were looking to find space that ultimately was compelling to bring people back. And, then, when they brought people back, they realized they needed more space because more people wanted to come back. And so this had sort of a self-reinforcing push in New York.”

Rechler noted that the strong demand for Class A space in New York has been driven in part by the return of tech companies to major New York office leases, and that tech’s status as just one aspect of New York’s mix of industries is a major factor in what keeps the city’s office sector moving forward.

“One of the things that makes New York so great is the diversity of industries here,” said Rechler. “You don’t have that in other parts of the country. When San Francisco didn’t have tech, that was a drought. When New York doesn’t have tech, we’re still filling up all the space and beginning this incredible absorption process and dynamic leasing cycle. And now tech comes back to the market, and all of a sudden there’s a scarcity of large blocks of space. This has turned into a landlord’s market, where if a tenant wants a big block of space, they can’t hesitate to act or it won’t be there.” 

Rechler also spoke about how the office crisis has led to a significant value reset for the sector, leading to some compelling investment opportunities. 

“There’s been an extraordinary value reset in commercial real estate across the country, in office buildings in particular,” said Rechler. “Coming out of COVID, I think the average value is down 45 percent on a total value basis. So, if you assume a building is leveraged at 50 percent, it pretty much means it’s got zero value. That’s been an opportunity for us, because when you have that sort of dislocation, most institutions find office to be an uninvestible asset class. And, when institutions find something uninvestable, that’s a good time to invest because that means you have less competition.”

As it happens, this was followed by a panel on the demand for quality in the office market. In addition to Engelhardt, the panel featured Bernadette Brennan, executive director at owner and brokerage Serhant; Jamil Lacourt, chief operating officer at owner L&L Holding Company; Lauren Schmidt, principal at architecture firm KPF; and moderator Mike Gerazounis, CEO and managing principal at MG Engineering D.P.C.

The event’s final panel focused on occupier demand for amenities and other enticing features that could attract workers back to the office. 

The panel featured Ryan Kass, senior vice president of leasing for Empire State Realty Trust; Dean Shapiro, global head of development for Oxford Properties Group; Jim Somoza, partner and managing director at Brooklyn’s Industry City complex; moderator Josh Winefsky, partner at Kramer Levin; and Craig Deitelzweig, president and CEO at owner Marx Realty, who spoke about how drastically the industry’s attitude toward hospitality and tenant-pleasing initiatives has changed.

“My first real estate job was working for an old-time real estate family,” said Deitelzweig. “Their advice to me was, ‘With real estate, all you have to do is sit and do nothing. Just sit, and it all comes to you.’ And, in those days, that was really good advice. Those days have been over for a long, long time. Now, the office sector should be the same as residential, hospitality or retail, where everyone really does care about the customer experience.”