Manhattan’s Office Sector Has Become the Corporate World’s Surest Bet

With every new Manhattan office report of late, the good news flows like lava.  

Leasing volume was up 2.3 percent in the third quarter from the same time last year. Vacancy was at 12.6 percent — the lowest level since before 2020 — down from 13.1 percent at the end of the second quarter and from 14.7 percent last year at this time. Direct asking rent was up to $84.56 per square foot, with rents over $300 no longer a rarity and $400 per square foot in the market’s sights. 

And, these metrics were “broad-based across major industries,” according to JLL, indicating that the current success of the office sector is not reliant on any one segment of the market. 

The current health of Manhattan’s office leasing can be seen not just in the big picture numbers, but also in the size and duration of some of its biggest office deals and leases this year.

While Commercial Observer’s Office Deal of the Year, the 2 million-square-foot, 55-story deal for American Express to establish its new global headquarters at 2 World Trade Center, is not a lease, as American Express will solely own the building, it is a strong indicator of the company’s faith in the future of New York as the business world’s central hub as well as a notable addition to the city’s office landscape.  

Beyond that, this year has seen law firm Simpson Thacher & Bartlett sign for 916,000 square feet over 26 of the 29 stories at Extell Development’s 570 Fifth Avenue, Bank of America add 600,000 square feet to its existing 1.8 million square feet at One Bryant Park over a 20-year term, and Anthropic ink a full-building deal for 330 Hudson Street.  

The only seemingly potential dark cloud on the horizon for Manhattan office leasing is a lack of supply. It has roughly 7.9 million square feet currently under construction and expected to come online between 2028 and 2032, but much of that space is already pre-leased.

Yet, despite all this, the world seems rife with domestic and geopolitical uncertainty, including economy-shaking factors including rising Treasury yields and interest rates, never mind tariffs and war, leading to an economy that at times seems not so much built on a solid future-focused foundation as on occasionally defying reality. 

Given all this, it’s worth asking whether it makes sense to believe that this is really the beginning of long boom times for the office sector.

Nicholas Farmakis, vice chairman at Savills, believes that despite these factors, the economy is exactly where businesses want it to be from a macro perspective.

“There’s sort of two economies,” said Farmakis. “There’s the asset-based economy, which New York kind of runs off of, and then there’s the average U.S. citizen economy. There may be a bit of a spread there, but as far as the folks in New York, on a macro basis, the economy is doing well. Consumer spending is relatively high. The stock markets are at or close to all-time highs. Venture funding continues to flow. There are a couple of sort of cloudy spots on the horizon as there always are, but as of now, everything’s firing on all cylinders.”

Farmakis added that in the midst of all this, New York City remains as desirable a home base as ever for the business community.

“From a recruitment, retention and building a business standpoint, New York is where people want to be,” said Farmakis. “Whether it’s finance, tech, legal, nonprofit, fashion, media — by and large, New York City remains the center of the capitalist universe.”

A recent report from independent economic advisory firm Oxford Economics confirms just how true this is. 

Oxford Economics’ 2026 Global Cities Index, which ranks the world’s 1,000 largest cities on a variety of benchmarks, ranked New York’s economy as No. 1 with a $2.6 trillion GDP, while projecting that the city would add $3.8 trillion in GDP between 2025 and 2050, the largest projected increase of any city on the planet. 

Neil King, vice chairman at CBRE, believes the broad range of industries experiencing growth here is just one reason for optimism about the ongoing state of the market.

“One of the biggest positive attributes we’re seeing now versus even two or three years ago, when we started to see a real uptick in the leasing market, is that the entire universe of industry base in New York seems to be growing,” said King. “Big tech has woken back up and is looking to expand incrementally, and that’s in addition to the obvious financial and law firms that have been leasing a lot of space over the last three years. Every industry seems to be growing, which has certainly helped buoy the market over the last two years.”

Elecor Properties (formerly Paramount Group) owns an extensive Class A office portfolio in New York, including 60 Wall Street, 1301 Avenue of the Americas and 1633 Broadway, to name just a few. 

Peter Brindley, the firm’s head of leasing, cited this diversity of occupancy as one reason for the firm’s current leasing success, including a 91.6 percent occupancy rate in New York City as of the end of the second quarter.    

“We’ve had 11 consecutive quarters of leasing activity that exceeds the five-year quarterly average, which just continues to accelerate, and eight consecutive quarters of positive absorption,” said Brindley. “I think the diversification of the city’s tenant base over the last decade or so has been underappreciated. Manhattan is in a league of its own in that it appeals to leaders across a very diverse range of industries, which is a huge advantage for our market.” 

Another aspect of this success is that the office sector has benefited from the widespread rejection of work-from-home policies adopted during the pandemic.

“People are working three, four, five days a week back in the office. That’s not even a discussion anymore for people in the market,” said King. “If you’re in New York, you’re in the office, whatever the new cadence is.” 

Matt Astrachan, vice chairman of brokerage for JLL, agrees, noting how this ties in with the stiff competition in the corporate world for top talent and the office demands of top performers.

“There’s a fierce fight at the top end of our market for highly sought-after, talented folks, with everyone saying, ‘I want the best of the best,’” said Astrachan. “Every industry from banks to tech to insurance to law said, ‘We want everybody back for five days,’ and employees across all industry segments are responding, ‘That’s fine, but I want my own spot.’ That’s led to a lot of ‘uh-oh’ moments due to insufficient seat counts. Expansions not tied to lease expiry are going on all over town. I think that’s fundamental.”

Astrachan also noted that it’s this demand for top talent, and therefore more space, that’s helped rent levels skyrocket at the top of the market and then down throughout the office class hierarchy.

“I’ve been doing this for almost 40 years, and I never thought we would see rents like this in my lifetime,” said Astrachan. 

Given all this, there aren’t many factors spooking commercial real estate executives from holding a pronounced optimism about the New York office market going forward.

“If rates really spiked, if they went up another 100 or 150 basis points, I think that would be an issue,” said Bob Knakal, founder, chairman and CEO of BK Real Estate Advisors. “But aggregate demand seems to be very strong.”

Knakal also addressed widespread concerns about artificial intelligence’s potentially negative effects on the job market by recalling an article he once read about new technology eliminating jobs.

“The article talked about how unemployment’s going to spike, how there won’t be any place for people to work, and how unskilled labor is going to have a tough time. The article was written right after Henry Ford invented the assembly line,” said Knakal. “AI has proven that there are a lot more jobs being created that have to service, either directly or tangentially, all these AI jobs.” 

Victor Rodriguez, senior director of market analytics for CoStar Group, noted that even the dwindling supply provides reasons for optimism about the market’s next few years.

“When we talk about risk, I don’t think it’s demand falling off. It’s more of an optics issue,” said Rodriguez. “You’ll hear a bit less about major flight-to-quality deals. Those might dry up. Does that mean we’ll have far less activity? No. It’s a square-footage and availability issue. I expect rents and occupancy to continue moving upward. It won’t be at the same pace we’ve seen over the past two years, but overall the fundamentals remain strong.”

Astrachan did mention concerns about the way inflated Class A and trophy rents have trickled down to Class B properties, starkly raising rents on occupiers that might not be able to sustain the new rates over the long term.

“I hope that rents level off a bit, because it’s becoming a bit too stratospheric,” said Astrachan. “At that middle level, it was like $75 a square foot a year ago, and now landlords want $125. Some of those occupiers really can’t be in those offices.”

Throughout the conversations with industry experts, though, the only potentially mitigating factor to New York’s continued office success that was consistently mentioned was the possibility of a seismic and destabilizing macroeconomic event, such as the recent COVID-19 pandemic.

“The only thing that would, and the only thing that has ever, generated a reduction in occupancy that’s both large and sudden is a macroeconomic collapse. Are we seeing any signs of that? No,” said Rodriguez. “Obviously, we are seeing affordability issues across the U.S., and there are geopolitical issues. Those kinds of issues remain, but they can also change in an instant. So this is not a market that is bound to cool off. I think it just gets more strategic and selective.” 

So, between the strength of the corporate economy and New York’s dominant place within it, the office market’s current health and prosperity should continue apace.  

“We’ve come through some pretty crazy times, but people still want to live and work in New York City, and that’s a very positive sign,” said Knakal. “I’m not concerned for the office sector. Never bet against New York. New York always surprises to the upside.”

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