Prepared by Richard Plehn, Lisa Ann Pollakowski and Vanessa Ollarves.
Please click on the slideshow below for the full report. Alternatively, you can also follow the link on the button to read it on PDF.
SUMMARY OF THE COMMERCIAL OFFICE MARKET- Q1 2025 OVERVIEW
NEW YORK CITY ECONOMY
New York City’s economy showed positive growth with the civilian labor force expanding to 4.3 million in March 2025 from 4.2 million in March 2024. There were 20,800 jobs added to the market over the year. Sectors like healthcare and tech led gains, and transit and tourism improved, including a 16% rise in Broadway attendance. There was a 70-basis point increase in hotel occupancy rate.
Today, the government is decreasing federal fundings to non-profits, defense contractors, etc. This could have a negative effect on the commercial real estate market; however, the federal government may reverse the funding back to these organizations. Tenants are concerned about the federal trade policies representing a factor that could either positively or negatively influence the national economy and, by extension, the commercial real estate market.
THE MARKET IS IMPROVING
In New York City, Landlords and brokers feel the market is improving. Previously, the size of concession packages (i.e., landlord’s contribution towards tenant installation and free rent) was the key indicator of market health. If landlords had to provide a large concession package, that signaled weakness. Now, landlords and brokers primarily determine market strength based on leasing activity.
ASKING RENT VS AVAILABILITY RATE
New York City’s average office rental rate decreased from $50.52 in Q4 2024 to $49.91 in Q1 2025. The current asking rent is lower than the pre-COVID average of $59.32. The availability rate has also decreased by 70 basis points from 16.4% in Q4 2024 to 15.7 in Q1 2025. The current availability rate is higher than the pre-COVID average of 11.4%
THE ACTUAL AVAILABILITY IS LIKELY 3% TO 5% BELOW THE STATED RATE
The Manhattan office market is experiencing notable shifts in inventory due to financial restructurings, conversions, and ground net lease defaults. Approximately 11.9 million square feet of office space is unavailable for lease as landlords renegotiate their debt. An additional 9 million square feet is being converted to residential use, further reducing available office supply. Moreover, approximately 3.5 million square feet that was previously net leased by investors who have since defaulted has reverted to the landlords, many of whom have not yet determined future plans for these assets.
LEASING ACTIVITY IS BETTER THAN PRE-COVID LEVELS
In the first quarter of 2025, leasing activity was 10,918,009 square feet, a decrease from Q4 2024, 11,121,866 square feet. For the past four quarters, leasing activity has been better than the average pre-COVID of 9,963,875 square feet.
MIDTOWN AVAILABILITY RATE IS THE LOWEST IN MANHATTAN
Currently, Midtown has the lowest availability rate at 14.9%. However, this is still higher than its pre-COVID rate of 11.6%. Midtown South has a 17.1% availability rate, a significant increase from its pre-COVID rate of just 9.1%. Downtown’s current availability is 16.6%, also an increase from its pre-COVID level of 12.6%.
THE MIDTOWN MARKET STILL DOMINATED IN LEASING ACTIVITY
Leasing activity in Midtown is still the highest out of all three markets, comprising 62.2% of all leasing activity in New York City, even though it only represents 60% of the market. Midtown South leasing activity was 20.6%, even though it represents 19% of the market, and Downtown leasing activity was 17.2%, even though it comprises 21% of the market. Notably, the Penn Plaza/Garment Market area led individual submarkets with 1,796,835 square feet leased, followed closely by Grand Central (1,793,674 square feet) and then the Plaza District (1,431,662 square feet).
CLASS A OFFICE BUILDINGS DOMINATED THE LEASING
69.6% of leasing activity overall occurred in Class A Buildings, 72.6% in Midtown, and 88.9% in Downtown. In Midtown South, typically, Class B has the highest leasing activity; However, this quarter, dynamics shifted with Class A having 44.6% and Class B only accounting for 36.7%.
THE PIPELINE FOR NEW OFFICE BUILDINGS KEEPS DECREASING
As noticed in previous reports, the pipeline for new office buildings keeps decreasing. In Q1 2021, 27 buildings were being built, representing 16 million square feet, and in Q1 2025, only 14 buildings are being built, representing 4.9 million square feet.
10 LARGEST DEALS COMPLETED IN MANHATTAN
Four out of ten top deals were completed by financial firms. Seven out of 10 top deals were renewals. Seven out of 10 deals the tenant leased more space.
STARTING RENTS AND CONCESSION PACKAGE KEEP INCREASING
The starting rents increased in Q1 2025 to $74.6 from $69.2 in Q1 2023. The concession packages increased to $202.9 in Q1 2025 from $191.5 in Q1 2023. The TI Value in Q1 2023 was $142.9, and it increased by $1.2 to $144.1 in Q1 2025. The Free Rent in months has also increased to 9.4 months in Q1 2025 from 6.6 months in Q1 2023.
MANHATTAN IS RECOVERING
In summary, Midtown North is close to a full recovery. Midtown South is benefiting from tenants moving from Midtown to Midtown South. Downtown is starting to recover because the sublet market is shrinking.
