The subways are crowded, lines for lunch are long and suits are reappearing in Midtown Manhattan. All are indicators that five long years after New York City shut down, workers are back and, consequently, the office leasing market is thriving.

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

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

What’s driving the demand? Jobs. Annual private sector job growth increased by 2.0% in New York City, higher than the state and nation, which rose by 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 leasing by industry during the quarter with a 38% share of activity,” according to the report. “The professional services sector and TAMI (technology, advertising, media and information services) sector were tied with the second-largest share of activity after each group recorded a 24% segment of the demand.”

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

Large deals exceeding 100,000 square feet totaled more than 6.8 million square feet since the beginning of the year, led by credit tenants in finance, law, tech and AI. The largest leases so far this year included Jane Street’s 1,000,000 SF lease at 250 Vesey Street; Paul, Weiss, Rifkind, Wharton & Garrison’s 850,000 SF lease at 1345 Sixth Avenue; Deloitte’s 807,000 SF new lease at 70 Hudson Yards; and Simpson Thacher’s 700,000 SF lease at 570 Fifth Avenue.

Office Investment Strengthens as Sales Volume Jumps 88% to $4.8 Billion

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

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

Trophy Assets Command 79% of Sales Volume, Spark $19 Billion Refinancing Boom

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

A recent bellwether 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, acquired the 1.05M SF office tower from the State Teachers Retirement System of Ohio in reportedly the largest non-user office sale since 2018 and the largest office sale overall since 2022. Apollo Global Management provided a $785 million debt package ($650 million senior loan and $135 million mezzanine loan) and $60 million for tenant improvements and leasing 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 today’s “extraordinary value reset” as a prime opportunity to invest in office space.

Asking rents are $130/SF in the building, which is reportedly 87% occupied with 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, escalating to $118/SF in the final five years with a 15-month rent concession and $150/SF in tenant improvements allowance. RXR plans to renovate the atrium, while also exploring upside in the retail component through ongoing discussions with luxury retailers that bolster the corridor’s cachet.

In addition, New York City saw over $19 billion in refinancings for Class A and Trophy office buildings from January through September, many of which were over $1 billion dollars. These included the $2.85 billion refinance of the Spiral at 66 Hudson Boulevard; $1.5 billion refinance of the MetLife Building at 200 Park Avenue; $1.3 billion refinance of 151 West 42nd Street; $1.25 billion refinance of 5 Manhattan West at 450 West 33rd Street; $1.2 billion refinance of the Seagram Building at 375 Park Avenue; and $1.125 billion refinance of 3 Bryant Park.

In essence, the Class A and Trophy market is defined by a convergence of confidence: current owners are holding their assets, new equity is actively seeking entry and lenders, including the CMBS market, are competing to finance these premier properties.

Not All Offices Are Rebounding: Class B/C Sector Plagued by Distress, Deep Discounts

While the Class A story is one of resilience and re-investment, the picture looks quite different in the world of Class B and C office buildings, which are facing 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 the dollar volume and 80% of transactions. These assets averaged $621/SF, often trading at 40%–75% discounts. Therefore, the market is pushing owners toward upgrades, conversions or sales driven by distress and debt workouts.

An example of this trend is the sale of 229 West 36th Street & 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 that’s been hit hard by remote work, rollover risk and tightening 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 York City Class B and C trades are often trading at 40%–75% discounts.

New Tax Breaks and Rezonings Spark $1 Billion Office Conversion/Demolition Wave

For owners of Class B and C office buildings, conversion to residential use might be a viable path forward. Backed by new incentives like the 467-m tax abatement and zoning flexibility, including the Midtown South Mixed-Use Plan (MSMX), many offices are being repositioned for housing or, where unviable, for uses like self-storage.

Manhattan office sales slated for conversion or demolition accounted for $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 is projecting that 2025 will end with 31 office conversion and demolition trades, up 57% from 20 trades 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-m tax exemption to convert the office building into 107 studio apartments. Ariel Property Advisors’ Capital Services Group arranged a $68.1 million debt and equity package to finance both the acquisition and the residential conversion.

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

A joint venture acquired 29 West 35th Street for $25 million ($320/SF) in October with plans to create the first office-to-residential conversion under the new Midtown South rezoning.

Looking Ahead

Manhattan's office sector is in the midst of a dramatic and bifurcated resurgence. While a flight to quality, driven by job growth, has propelled Class A leasing to its highest point since 2002, this success masks a deep divide. This top-tier boom, which has unlocked over $19 billion in refinancing and sparked an 88% jump in sales volume, stands in stark contrast to the Class B and C market. There, persistent distress and discounts as high as 75% are forcing a different kind of boom–a $1 billion wave of office-to-residential conversions. As new incentives accelerate this trend, the market is clearly splitting into two distinct futures, one for premium reinvestment and one for adaptive reuse.

Content for this article was taken from Ariel Property Advisors’ New York City Q1-Q3 2025 Report, analyses from Ariel’s Research Group and Colliers’ Q3 2025 Manhattan Office Report.

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