Suits are back: New York office leasing hits 23-year high, boosting sales

The subways are crowded, the lunch lines are long, and suits are reappearing in Midtown Manhattan. These are all indicators that five long years after New York City shut down, workers are back and the office rental market is booming.

In fact, in Manhattan, 30.05 million square feet of office space was leased in the first nine months of the year, the highest demand yet since 2002, when 31.52 million square feet were leased, according to Colliers’ Manhattan Office Report Q3 2025.

Nearly 70% of total office leasing volume in the third quarter was concentrated in the Class A sector, which represents 64.4% of total market stock, according to the report. In Midtown Manhattan, average asking rents rose to $85.99/SF, and the overall availability rate fell to 13.1%.

What drives the demand? Jobs. Annual private sector job growth rose 2.0% in New York City, more than the state and country, which rose 1.4% and 0.9%, respectively, according to a New York State Department of Labor report cited by Colliers.

“Manhattan’s FIRE (financial services, insurance and real estate) sector led the industry in leasing during the quarter with a 38% share of the activity,” the report said. “The professional services sector and the TAMI (technology, advertising, media and information services) sector had the second largest share of activity, after each group recorded a 24% segment of demand.”

In Manhattan, top tenants are willing to pay premium rents for the location, amenities and environments that support a strong corporate culture and employee retention.

Major deals of over 100,000 sq ft totaled over 6.8 million sq ft since the start of the year, led by credit tenants in the financial, legal, technology and AI sectors. The largest leases so far this year include the 1,000,000 SF lease of Jane Street at 250 Vesey Street; Paul, Weiss, Rifkind, Wharton & Garrison’s 850,000 SF lease at 1345 Sixth Avenue; Deloitte’s new 807,000 SF lease at 70 Hudson Yards; and Simpson Thacher’s 700,000 SF lease at 570 Fifth Avenue.

Office investment increases as sales volume increases 88% to $4.8 billion

With the revival of the office rental market, we see a parallel revival in office sales, as renewed investor confidence and selective demand for high-quality assets continue to drive momentum in the sector.

Office investment activity increased to $4.8 billion in the first three quarters of 2025, with dollar volume up 88% and transactions up 49% year-over-year. Ariel Property Advisors’ New York City Q1-Q3 2025 All Asset Report shows.

Trophy assets command 79% of sales volume and fuel a $19 billion refinancing wave

Top Class A and Trophy office buildings accounted for 79% of total office sales over the nine-month period, with an average value of $819/SF, up 18% year-over-year and just 6% below the 2018 benchmark.

A recent transaction at 590 Madison Avenue in the Plaza District, which sold for an impressive $1.08 billion or $1,025/SF in August, is indicative of the demand for Class A and Trophy assets. RXR, in partnership with Elliott Investment Management and Baupost Group, has developed the 1.05M SF office tower of the State Teachers Retirement System of Ohio in reportedly the largest non-occupier office sale since 2018 and largest office sale overall since 2022. Apollo Global Management provided a debt package of $785 million ($650 million senior loan and $135 million mezzanine loan) and $60 million for tenant improvements and lease costs.

Scott Rechler, CEO and chairman of RXR, called the Plaza District property “one of the highest quality buildings in Manhattan with one of the best locations at 57th Street and Madison,” citing current figures. “extraordinary value reset” as an excellent opportunity to invest in office space.

Asking rents are $130/SF for the building, which is reportedly 87% occupied by major tenants including IBM North America, EF Hutton, Corcoran Group, Regus, Bonhams and Apollo Global Management. Apollo signed a 96,224 SF lease in 2025 at a base rent of $98/SF, increasing to $118/SF over the last five years with a 15-month rent concession and $150/SF in tenant improvements allowance. RXR plans to renovate the atrium while exploring the positive side of the retail component through ongoing conversations with luxury retailers that enhance the corridor’s cachet.

Additionally, from January through September, New York City saw more than $19 billion in refinancings for Class A and Trophy office buildings, many of which exceeded $1 billion dollars. These include the $2.85 billion refinancing of the Spiral at 66 Hudson Boulevard; $1.5 billion refinancing of the MetLife building at 200 Park Avenue; $1.3 billion refinancing of 151 West 42^i.e Street; $1.25 billion refinancing of 5 Manhattan West at 450 West 33^rd Street; $1.2 billion refinancing of the Seagram Building at 375 Park Avenue; and $1.125 billion refinancing of 3 Bryant Park.

Essentially, the Class A and Trophy market is defined by a convergence of trust: current owners hold their assets, new capital actively seeks entry and lenders, including the CMBS market, compete to finance these prime properties.

Not all offices recover: class B/C sector plagued by distress and large discounts

While the Class A story is one of resilience and reinvestment, the picture looks very different in the world of Class B and C office buildings, which face the persistent headwinds of rising vacancies and falling rents.

In the first nine months of the year, Class B and C sales represented 21% of dollar volume and 80% of transactions. These assets averaged $621/SF, often trading at discounts of 40% to 75%. Therefore, the market is pushing owners towards upgrades, conversions or sales, driven by problems and debt repayments.

An example of this trend is the sale of 229 West 36th Street and 256 West 38th Street, which sold in May for $40.75 million, or $165/SF, a 74% discount from the $156.8 million purchase in 2017 when the buildings were fully leased. Since then, both occupancy and valuation have fallen sharply in the post-pandemic environment. Asking rents range from $32/SF to $44/SF, reflecting their Class B positioning in a market hit hard by remote work, rollover risk and tighter credit.

Empire Capital bought the buildings from Investcorp. The deal was a short sale, meaning the owner and lenders agreed to sell the properties for less than the outstanding amount on the mortgage.

New tax breaks and repurposing are fueling a $1 billion wave of office conversion/demolition

For owners of Class B and C office buildings, conversion to residential use may be a viable path forward. Supported by new incentives such as the tax reduction of 467 million euros and flexibility in zoning plans, including the Midtown South Mixed Use Subscription (MSMX), many offices are being repositioned for housing or, where this is not feasible, for use as storage space.

Sales of offices in Manhattan slated for conversion or demolition represented $1 billion of the $4.5 billion development sales tracked in Ariel Property Advisors’ New York City Q1-Q3 2025 All Asset Report. Ariel’s Research Group predicts that 2025 will end with 31 office renovations and demolitions, up 57% from 20 transactions in 2024.

A joint venture led by Marty Burger’s Infinite Global Real Estate Partners and Andrew Heiberger’s Buttonwood Development acquired 29 West 35th Street for $25 million ($320/SF) in October and will create the first office-to-residential conversion under the new Midtown South rezoning. The sponsors plan to use the 467 m2 tax exemption to convert the office building into 107 studio apartments. Ariel Property Advisors’ Capital Services Group arranged one Debt and equity package of $68.1 million to finance both the purchase and renovation of homes.

This deal demonstrates the momentum in the conversion market due to state and city-driven incentives. Together, the repurposing and the 467 m2 program reflect the alignment between the city and state housing policies driving this new wave of conversion activity.

Looking ahead

Manhattan’s office sector is in the midst of a dramatic and divisive resurgence. While a flight to quality, driven by job growth, has pushed Class A leasing to its highest point since 2002, this success masks a deep divide. This cresting wave, which has unlocked more than $19 billion in refinancing and driven an 88% increase in sales volume, is in stark contrast to the Class B and C markets. There, persistent problems and discounts of up to 75% are fueling a different kind of boom: a wave of office-to-residential conversions worth $1 billion. With new incentives accelerating this trend, the market is clearly splitting into two distinct futures: one for premium product reinvestment and one for adaptive reuse.

Content in this article is drawn from Ariel Property Advisors’ New York City Q1-Q3 2025 Report, analysis from Ariel’s Research Group and Colliers’ Q3 2025 Manhattan Office Report.