Prepared by Richard Plehn, Lisa Ann Pollakowski, Vanessa Ollarves, Steve Gardner
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SUMMARY OF THE COMMERCIAL OFFICE OVERALL MARKET – Q2 2026
OVERALL LEASING ACTIVITY DECREASED
At more than 23 million square feet, leasing activity during the first half of 2026 was greater than the first half in any of the previous 20 years. For the second quarter, activity totaled 10.9 million square feet, a decline from last quarter’s 12.3 million square feet. However, this was above pre-COVID levels (9.9 million square feet), as it has been for the past eight quarters. Leasing activity for the market overall has now exceeded 10 million square feet for eight consecutive quarters.
LEASING ACTIVITY BY MARKET
Although Midtown leasing activity had increased quarter-over-quarter in each of the past three quarters, it decreased in Q2 2026, falling from 8.02 million square feet to 6.25 million square feet. This represented 57.5% of overall Q2 leasing activity, down from 63.9% in Q1 2026. It was also the smallest percentage in the past five years and well below the five-year average of 65.4%.
Midtown South recorded 3.1 million square feet of leasing activity in Q2, representing 28.4% of the total, up from 27% in the prior quarter and well above its 1.9 million square feet pre-COVID leasing average. It was also the third consecutive quarter in which activity increased. Based on the first six months recording the highest half-year total since 2021 (with Q1 2025 ranking second) we expect the Midtown South market to achieve a record year in leasing activity.
Downtown, with 1.5 million square feet of activity, accounted for 14.2% of the total, but fell below its pre-COVID levels of 1.7 million square feet. Despite that, Downtown leasing in Q2 exceeded the five-year average of 1.2 million square feet. On an annual basis, though, Downtown has been inconsistent, so we will be keeping a close eye on the next two quarters. However, with many tenants being priced out of Midtown and Midtown South we expect leasing activity to increase in downtown.
CLASS A CONTINUES TO DOMINATE LEASING ACTIVITY
In Q2, Class A leasing activity decreased to 6.9 million square feet from 7.8 million square feet in the previous quarter. Nevertheless, that was considerably above the five-year average of 6.2 million square feet. Historically, Class A buildings have dominated leasing activity in Manhattan and Q2 continued that trend, representing 63.3% of the total. At the same time, Class B recorded 29.9% of total activity (3.2 million square feet), and Class C represented 6.9% (745,876 square feet).
ASKING RENTS TICKED UPWARDS
Average asking rents increased from $50.26 per square foot in Q1 2026 to $50.99 per square foot in Q2 2026, a growth rate of 1.4%. This marked the third consecutive quarter in which average asking rents increased and the first time since Q2 2025 that the $50.00 threshold was breached. As we have consistently pointed out, the increase may be even greater, as more landlords, following a trend, are opting not to publicly list their asking rents. This practice artificially lowers the average reported. Nevertheless, this was the highest quarterly asking rate seen since Q1 2024.
ASKING RENTS BY MARKET
By market, Midtown South recorded the highest asking rent in Q2, averaging $55.24 per square foot. For example, 610 Broadway is asking approximately $225.00 per square foot, which is believed to be the highest rent ever asked in Midtown South.
Midtown ranked second, with an average asking rent of $49.98 per square foot.
As is normally the case, the Downtown market ranked third at $48.14 per square foot. As noted earlier, some landlords do not publish their asking rents. If they did, the Midtown average asking rent would assuredly be higher than Midtown South.
AVAILABILITY TIGHTENED
The availability rate in Q2 2026 was 13.0%, a decrease from13.4% in Q4 2025. This marked the ninth consecutive quarter in which the rate declined. However, the rate is still above pre-COVID levels of 11.4%.
As availability keeps decreasing, securing quality space (e.g., abundant natural light, high ceilings, and attractive views in a well amenitized building) remains increasingly challenging in the current market. Consequently, bidding wars for premium space are beginning to emerge, a trend not seen since before the pandemic.
AVAILABILITY BY MARKET
Midtown continued to record the lowest availability rate in Q2 at 12.7%, dropping from 13.1% in the prior quarter. However, this remains 5% higher than pre-Covid levels. Midtown’s rate however, similar to the overall market, has now declined for nine consecutive quarters. Downtown posted the highest overall availability rate at 13.5%, while Midtown South stood at 13.1%.
SUBLET VS TOTAL AVAILABLE SPACE IS SHRINKING
Reflecting a trend in evidence for the past eight quarters, in which sublet space as a percentage of total availability has declined or remained the same, Q2 2026 saw the sublet rate drop to 15.4% (11,655,637 square feet) from 15.7% (11,832,407 square feet) in the previous quarter. As sublet space continues to decrease, tenants have begun leasing 2nd generation space. Consequently, we are forecasting that in the long run landlords will not need to offer large concession packages to attract tenants.
Downtown leads all submarkets with the highest sublet rate at 20.0% (3,210,239 square feet), followed by Midtown at 15.0% (6,456,235 square feet) and then Midtown South with 13.7% (1,989,163 square feet).
LARGE TENANTS STRUGGLED TO FIND SPACE
Tenants seeking contiguous blocks of space greater than 500,000 square feet are facing considerable difficulties, given the scarcity of suitable options. At present, Manhattan offers only 11 buildings capable of accommodating such large-scale requirements, highlighting the limited availability for occupiers with substantial space needs.
The shortage of large, contiguous spaces has led many tenants to renew their existing leases and expand within their current buildings, rather than move elsewhere. Meanwhile, some organizations are pursuing multi-location strategies, diversifying their office portfolios across two or more sites to meet their space requirements, and remain flexible in this highly competitive market. One tenant, Citadel, is even spearheading a major redevelopment at 350 Park Avenue in partnership with Vornado Realty Trust and Rudin Management. Demolition was set to begin in July and Citadel will eventually occupy a minimum of 850,000 square feet.
PRIVATE OFFICE DESK RENTS INCREASED IN NEW YORK CITY
New York City’s coworking market experienced a modest setback in the second quarter of 2026, with total inventory slipping from 15.3 million to 15.2 million square feet. The decline was concentrated entirely in Manhattan, which lost roughly 200,800 square feet of coworking, creative office and shared lab space, driven by reductions in the World Trade Center, United Nations and Times Square submarkets. The pullback appears localized rather than systemic, as Gramercy Park and Greenwich Village both added inventory, while Brooklyn, Queens and the Bronx were stable or growing.
Despite the slight contraction in supply, pricing continued to strengthen. Manhattan private office desk rates increased 4.6% quarter-over-quarter to an average of $821 per desk, with Lower Manhattan leading the city after a sharp 15.7% increase to $947 per desk. For occupiers, the report suggests that while coworking inventory is adjusting in certain Manhattan submarkets, demand and pricing for both flexible and conventional office space remain resilient.
OFFICE TO RESIDENTIAL CONVERSIONS
Nineteen office buildings are physically being gutted for apartments right now, and another twenty-four are permitted or financed and waiting to start. Citywide, the New York City Comptroller counts 44 post-2020 projects totaling 15.2 million square feet, with roughly 14.7 million of that in Manhattan. That is inventory leaving the market permanently, concentrated in exactly the commodity Class B and older Class A stock that has anchored value pricing for a decade: 111 Wall Street, 222 Broadway, 5 Times Square, 750 Third Avenue, the former Pfizer headquarters on East 42nd Street.
As this report was being written, there were three stop-work orders at three separate conversion projects. For landlords, the stop-work orders are the counterweight: these projects are slower and riskier than the headlines suggest, and delivery dates will slip.
UNDER CONSTRUCTION BUILDINGS INCREASED
There are presently nine buildings under construction totaling 5,678,030 square feet for an average of about 710,000 square feet per building. This was an increase from Q1 in which seven buildings equaling 3,728,005 square feet were in the pipeline. Despite the increase, construction timelines in Manhattan are lengthy and the additional supply is likely inadequate to meet demand for high-quality space. The two new under construction buildings are 75 Maiden Ln and 2 World trade center, both in the Downtown market.
STARTING RENTS AND NET EFFECTIVE RENTS INCREASED
Both starting rents and net effective rents continue to increase. Average starting rents rose from $78.67 per square foot in Q2 2025 to $83.12 in Q2 2026, an increase of 5.7%. Net effective rents also rose, increasing from $72.96 to $77.55 over the same period. This represented growth of 6.3%.
AVERAGE TOTAL CONCESSION PACKAGE AND TI ALLOWANCE INCREASED
Although less dramatic than the rise in rents, tenant improvement allowances edged up to $107.53 per square foot from $105.13 in Q1 2025. Total concession packages also increased, going from $148.40 in Q2 2025 to $153.25 in Q2 2026.
AVERAGE LEASE TERM
The average lease term increased modestly from 85 months (7 years and 1 month) in Q2 2025 to 87 months (7 years and 3 months) in Q2 2026.
FREE RENT
For every year of lease term, the typical tenant receives approximately one month of free rent.
THE MARKET HAS RECOVERED
Manhattan’s office market remained remarkably resilient in the second quarter, even as leasing activity eased from the record pace set in Q1. At 23 million square feet, first-half leasing was the strongest in more than two decades, with activity remaining above pre-pandemic levels for the eighth consecutive quarter. Tightening conditions continued to push average asking rents higher while availability fell for a ninth straight quarter, making premium, well-amenitized space increasingly difficult to secure and fueling the return of competitive bidding for top-tier offices.
Large tenants face an especially constrained market, with only a handful of buildings able to accommodate requirements exceeding 500,000 square feet, prompting many occupiers to renew early, expand in place or adopt multi-location strategies. As a result, eight out of ten of the largest deals were renewals.
The combination of sustained demand, declining availability and an inadequate development pipeline suggest continued competition for Manhattan’s best office space. We believe rents and concessions packages will continue to increase, and term will be longer.
