Prepared by Richard Plehn, Lisa Ann Pollakowski, Vanessa Ollarves, Steve Gardner
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SUMMARY OF THE COMMERCIAL OFFICE DOWNTOWN MARKET – Q2 2026
LEASING ACTIVITY INCREASED BUT IS STILL BELOW PRE-COVID LEVELS
In Q2 2026, Downtown leasing activity rose by more than 25% to 1,540,538 square feet, driven entirely by a sharp increase in direct leasing, which grew from 500,000 square feet in the previous quarter. Total activity also exceeded the five-year quarterly average of 1,222,362 square feet. Even with this improvement, activity has remained slightly below the pre-COVID benchmark of 1.6 million square feet for the past two quarters. Although the number of deals was well below the five-year average of 114, 111 transactions recorded were in line with the five-year average of 114. Given the increase in activity, average deal size jumped dramatically from 6,759 to 13,878 square feet.
CLASS A OFFICE LEASING ACTIVITY BUT REMAIN BELOW PRE-COVID LEVELS
Class A office buildings have led Downtown leasing activity for the past ten quarters. In Q2 2026, Class A leasing increased to 1.1 million square feet, up from 827,800 square feet in Q1 2026. Despite this improvement, Class A activity has remained below the pre-COVID benchmark of 1.3 million square feet for the past two quarters. At the same time, other than Q4 2023, which had abnormally high activity, Q2 2026 represented the second strongest quarterly Class B leasing in the past five years. This was also the highest quarterly direct Class B leasing after Q4 2023.
WTC ACCOUNTED FOR 52.1% OF ALL LEASING IN THE DOWNTOWN MARKET
The World Trade Center submarket accounted for 52.1% (803,088 square feet) of Downtown’s Q2 leasing activity. As is usually the case, the Financial District was second with 25.1% (386,661 square feet).
AVERAGE ASKING RENT INCREASED BUT LIKELY MASKS AN EVEN HIGHER NUMBER
The average asking rent increased from $47.61 per square foot in Q1 2026 to $48.14 per square foot in Q2 2026. This was the third consecutive quarter in which the average rose. Despite the increase, the actual average is likely to be even higher, as more landlords are opting not to publicly disclose their asking rents. The average of $48.14 is also the highest since Q2 2023, the last time the asking price exceeded $50.00. Class A asking rents in Downtown averaged $48.03; Class B rents averaged $48.25 per square foot, and Class C averaged $47.86. Both of the latter two were up compared to the preceding quarter.
TRIBECA HAS THE HIGHEST ASKING RENTS AMONG THE SUBMARKETS
Among the Downtown submarkets, Tribeca recorded the highest base rent at $63.83, followed by the World Trade Center at $49.71. Although Tribeca continues to have the highest asking rent among the submarkets, the average declined from $64.73 in the last quarter. It should be noted however, that if World Trade Center landlords published asking rents, they would be highest among all Downtown submarkets.
SUBLET AVAILABILITY KEEPS DECREASING QUARTER-OVER-QUARTER
Available sublet space has been steadily decreasing since Q1 2023, with this quarter being no exception, as the rate fell 180 bps from 21.8% in Q1 2026 to 20.0% in Q2 2026. This is the lowest percentage in more than five years. Despite this improvement, the Downtown market currently has the lowest percentage of sublet space among all three major markets and is well above its pre-COVID level of 14.7%.
THE AVAILABILITY RATE CONTINUED TO DECLINE
The overall Downtown availability rate has been declining for the past three years, falling from 17.9% in Q2 2023 to 13.5% Q2 2026. That rate, however, is still above the pre-COVID levels of 12.6%. As observed in previous quarters, the availability rate will drop as quality buildings become leased, and obsolete buildings convert to residential use. Among the submarkets, the Financial District (FiDi) represents the highest rate at 19.7%, followed by Tribeca at 13.8%, and the World Trade Center at 13.2%. It should be noted, however, that FiDi’s rate has now declined for four consecutive quarters and is below 20% for the first time since Q1 2022. The City Hall submarket again had the lowest rate at 4.2%.
FIVE LARGEST DEALS COMPLETED
In Q2 2026, four out of five of the largest deals were renewals, five of five were direct deals, three out of five were space reductions, and four out of five took place in Class A buildings. The largest deal in Downtown was Cleary Gottlieb leases 475,000 square feet at 1 Liberty Plaza in FiDi. The second largest transaction also took place at One Liberty Plaza where AON Inc. leased 201,931 square feet.
NET EFFECTIVE RENTS AND STARTING RENTS INCREASED
Landlord net effective rents rose from $51.45 in Q2 2025 to $52.74 in Q2 2026, an increase of 2.5%. Starting rents similarly increased in Q2, rising year-over-year from $54.92 to $56.52.
AVERAGE TERM INCREASED
The average lease term increased from 93 months (7 years and 9 months) in Q2 2025 to 95 months (7 years and 11 months) in Q2 2026, which placed it first among the three markets.
TOTAL CONCESSION PACKAGES AND TI ALLOWANCES DECREASED
Total concession packages decreased marginally from $114.00 in Q2 2025 to $113.60 in Q2 2026. The average tenant improvement allowance also decreased year-over-year, falling from $83.75 to $82.01 in Q2 2026. The latter is more significant than it first appears in that construction costs increased during this period. (For one, the Turner Construction Cost Index rose 5.15% year-over-year by the [texto cortado]).
FREE RENT
On average, tenants receive 5 Months Free Rent when the tenant signs a 7-year and 11-month (i.e., 95 months) term lease.
DOWNTOWN’S RECOVERY
Downtown Manhattan’s office market gained momentum in Q2 2026 as leasing surpassed the five-year average, rents continued to rise, overall availability fell for a third straight year, and sublet space declined, signaling steady recovery. The World Trade Center led demand, Class A remained the preferred choice, and strong renewals anchored activity, though overall leasing still trailed pre-COVID levels. At the same time, concession packages narrowed, lease terms lengthened, and tighter tenant improvement allowances reflected a market gradually improving landlord leverage.
