Midtown Manhattan’s Tight Office Vacancy Is Both a Blessing and a Curse

How intense is the flight to quality for office space in Midtown Manhattan?

Let’s ask David Falk, president of the New York tri-state region for Newmark. “The top 50 buildings in Midtown have a less than 3.7 percent availability rate.”

Before COVID, that number was over 12 percent.

As companies seek out the most comfortable, most amenitized and most productivity-optimized office spaces — that are also close to mass transit —  the Midtown office sphere has become a microcosm of the division between the best-of-the-best and the best-of-the-rest, given how little available space there is in trophy properties across the market. 

In Newmark’s Manhattan office report for the fourth quarter of 2025, the company noted that “available space within the trophy set has not registered a quarterly rise” since the first quarter of 2023.

Peter Johnson, a senior director at Avison Young, notes how the lack of trophy availability is so stark that, for some, it has altered the basic nature of tenant preferences. 

“Obviously, we’ve had the best year in nearly a decade, with financial and legal services always being the drivers for Midtown,” said Johnson. “The vacancy and absorption rates say it all. With this huge flight to quality, tenants are not necessarily preferring location. They prefer quality, because everything’s been gobbled up.”

According to a report from CBRE, leasing activity for Midtown reached 19.47 million square feet in 2025, a 16 percent increase from the year prior, the highest total since 2018, and among “the strongest [years] on record.” Net absorption for Midtown hit 7.88 million square feet, its “highest mark in nearly 30 years,” and the availability rate declined to 13.4 percent, “moving closer to the pre-pandemic level of 11.8 percent.” 

The average asking rent in Midtown, meanwhile, reached $84.24 per square foot, up 3 percent from the fourth quarter of 2024.  

“Asking rents posted modest growth, driven by limited availability in high-priced assets, but were held back by a lingering supply of challenged space,” read the report. “While Midtown’s overall asking rent saw only slight quarterly and annual gains, top-tier assets with strong leasing momentum recorded more pronounced annual increases.”

Office buildings in the most desirable Midtown submarkets, particularly Penn Plaza and the Plaza District, flourished more than others under this bifurcated rent regime. (Hudson Yards is part of the Penn Plaza area.)

According to a fourth-quarter 2025 report from Transwestern, Penn Plaza and the Plaza District had availability rates of 9.9 percent and 10.4 percent for the quarter, respectively. By comparison, Midtown’s East Side submarket availability rate was 16.1 percent, Times Square’s was at 14 percent, and Grand Central’s sat at 13.7.

The differences in Class A average asking rents was equally stark. Penn Plaza and the Plaza District clearly led the market, averaging $90.52 and $92.01 per square foot, respectively. Columbus Circle’s average rent was $67.88, the East Side’s was $75.21, and Grand Central’s was $76.52.   

The Penn Plaza area in particular also had a strong year for positive absorption, with more than 3.44 million square feet taken as it came on the market, according to Transwestern. 

Evidence of Midtown’s solid overall performance coming into 2026 comes in several forms, with another being how the market as a whole is faring compared to before the pandemic.

“Midtown Class A office rents are about 6 percent higher than pre-pandemic,” said Michael Morris, president of the data center practice for the occupier advisory firm Cresa. “A significant portion of square footage in Midtown consists of Class A trophy product. There’s absolutely been a gravitas to the newer product.”

This was also reflected in the number and size of significant leases signed throughout the market’s office properties last year. 

“Most of the big leases, 100,000 square feet and over, were in Midtown,” said Corrie Slewett, research manager for the New York market for Transwestern. “There were a lot of renewals and expansions by long-term occupiers taking on more space or moving into newer and bigger space. We saw a lot of that, which is definitely a sign of confidence in the market.” 

Examples of this include Deloitte relocating from 30 Rockefeller Plaza to 800,000 square feet at the in-development 1.1 million-square-foot, 60-story 70 Hudson Yards; Citadel taking 504,000 square feet at 660 Fifth Avenue; Bloomberg renewing for 495,753 square feet at 120 Park Avenue; Millennium Management extending from 300,000 square feet to 438,000 square feet at 399 Park Avenue; and the United Nations Association taking 425,190 square feet at 2 United Nations Plaza.

“I don’t want to say that Midtown is 100 percent recovered,” said Slewett, “but it’s definitely well along the way.”

Given the intensity of the demand, the overall prognosis for Midtown’s office market is mostly positive.

“In my entire career, I don’t recall Midtown being in such demand,” said Newmark’s Falk. “In 2025, for every 25,000-square-foot tenant that relocated in Midtown, 76 percent of them took at least 10 percent more space.”

In one strong example of both the desirability and limited availability of Midtown trophy product, BXP is currently developing a 46-story, 930,000-square-foot office property at 343 Madison Avenue that is not expected to deliver until 2029. Despite the site still in its excavation phase as of December 2025, the developer has already signed an anchor tenant, investment giant C.V. Starr, for around 275,000 square feet, or roughly 30 percent of the property.   

Falk cites the Starr lease as a prime example of both the strength and the current limitations of the Midtown office market.

“C.V. Starr is a great tenant. They’ve been at 399 Park Avenue for a long time,” said Falk. “That deal stands out because it proves that there is tremendous demand from companies that have been in a space for a while — Starr has been in its space for over 10 years. This also shows that the market is so tight that if you need over 250,000 square feet, you’re in the market four years before, because you may have to go to new construction that’s planned for 2032.”

But, as Avison Young’s Johnson said, with the best locations being taken in droves by major companies in finance and law with some spillover into tech (although tech has been far more focused on Midtown South), many companies are trading their hopes for a central Midtown location for properties elsewhere that may be more Class B than Class A. Still, these second choices are usually making at least some effort to compete with Class A trophy buildings — with often far less expensive rents.

“With such a concentration of leasing activity in 2024 going into the first half of 2025 in trophy assets, it could only benefit commodity space,” said Johnson, referring to Class B buildings. “With such tight supply around trophy and even Class A now, tenants don’t have a choice because all of that space has been leased.”

Johnson mentioned a client who is currently seeking 25,000 square feet in Hudson Yards, and how it has only three options.

“All they care about is glass and steel,” said Johnson. “There’s such limited inventory that they’re going to be forced to look into a lesser-quality building with probably lower rent. Groups that always needed to be on Park Avenue are now starting to look at Third Avenue.”

Johnson noted a deal he recently executed at the Durst Organization’s redeveloped 825 Third Avenue in the East Side submarket for $92 a square foot, a short toss from crossing the $100-per-square-foot barrier.

“Ninety-two dollars a square foot on Third Avenue. Are you kidding me?” said Johnson. “It’s newer construction, a brand-new $200 million redevelopment. But the only reason the client went there is because there was no availability on the Park Avenue corridor they wanted to be on.”

While rents for certain suddenly desirable areas skyrocket, it’s worth remembering that average asking rents throughout Midtown are up just 3 percent for the year, a situation created by the tightening market.

“Rents are having a hard time coming up because the weighted average considers what’s available,” said Transwestern’s Slewett. “As this Class A availability declines, all those high-priced spaces are getting leased up, and what’s left tends to be Class B or lower. And what’s left of the Class A product isn’t necessarily the best stuff. So, when we make our rates, you’re seeing Class B, which is lower, and Class A, which maybe isn’t top of the line because it’s what’s available, and it brings the overall rate down.”

One factor that could ease market availability and raise rents in the coming years is the much-anticipated launching of new trophy office product. 

Falk reeled off a list of anticipated or currently in development sites or projects, including 175 Park Avenue, the Roosevelt Hotel site, 346 Madison Avenue, 415 Madison Avenue, 70 Hudson Yards and 3 Hudson Boulevard.

“All these new buildings are going to get populated with great brands,” said Falk. “So, the question is, what do they leave behind? The tenants that are moving to these buildings are all leaving Class A buildings. It’s not like they’re going to be leaving the base of a B-minus building and going to a trophy building. So, I think what they’re leaving will have tremendous demand as well, because only so many buildings can go up.”

Until that time comes, the dearth of supply is almost certain to exacerbate, causing disappointment and headaches for occupiers and brokers alike.

“You may see more tenants willing to stay in place and build, construct, and renew,” said Falk. “Because when they’re looking to see what great possibilities are out there and they’re not really finding that, they may have to be creative. If you said to me, ‘Me and my friend are starting a fund and we need 50,000 square feet, and we want to be at Madison and Park,’ that used to be fun. ‘Let’s go out Tuesday morning.’ Now I’m like, ‘Let’s put our thinking caps on. Where can we create this?’ 

“A lot of tenants who have leases coming due in the next few years may not be able to get what they want, and the buildings they’re looking at won’t be better than the buildings they’re in, so it won’t be worth the move.” 

Larry Getlen can be reached at lgetlen@commercialobserver.com.