NYC Office Leasing Market — Reality Check (May 2025)
Since 2020, the prevailing narrative has been that “the NYC office market is dead.” For real estate investors, this perception has been largely accurate — high vacancies, surging construction costs, rising operating expenses, inflated labor costs, high interest rates, and soaring real estate taxes have devastated asset values. However, this is only part of the story.
The Demand Side is Roaring Back
Employees are returning to the office. The recovery is location- and asset-specific, but it’s real. Since 2022, the high-end Class A market has been white-hot. Trophy properties like One Vanderbilt are now asking $350/rsf — levels previously thought unattainable.
- Midtown’s prime corridors (e.g., Park Avenue) are experiencing some of the tightest vacancy conditions in decades.
- The Penn Station and Chelsea submarkets have shown real strength over the past 3 months, surprising many with aggressive demand.
- I’m currently engaged in three active bidding wars, where landlords are countering offers above asking — a stark contrast from just months ago when discounts of 5% below ask were common.
Industry-Wide Ripple Effects
A recent article in the New York Post highlights how the return-to-office trend has been rolling through industries:
“Elite financial firms led the way, followed by commercial banks, law firms, and now technology. The creative sector is following.” — Marc Holliday, CEO of SL Green
He also noted:
“Vacancies will continue to fall as low as 12% in Midtown and below 7% in the prime Park Avenue corridor — maybe the tightest conditions I’ve ever seen for prime space in my career.”
Reversion to the Mean is Driving Rent Growth
Current asking rents are still in line with where deals were struck 20–30 years ago. If we factor in inflation and long-term market trends, spaces like:
- 130 West 42nd Street should command $75–80/rsf
- 450 Seventh Avenue should be around $70/rsf
Even more telling: the ownership of 130 West 42nd is reconsidering its previously announced residential conversion plans — a signal of renewed confidence in office leasing.
Landlord Economics: The Bottom Line
Let’s break down a typical landlord’s position:
- Operating Expenses & Taxes: $25/rsf
- Debt Service: $21/rsf (based on a 7% interest rate & $300/rsf asset value)
- Breakeven: $46/rsf — before considering construction, free rent, downtime, and leasing commissions.
Given these fundamentals, landlords cannot sustainably transact at heavily discounted rents. And after 5+ years of losses and survival mode, they are poised to reclaim pricing power as demand resurges.
Time Sensitivity: The Market is Moving Fast
Over the past 6 weeks alone:
- I’ve seen clients lose deals because they didn’t believe the market had shifted.
- Those same clients are now facing 10% higher costs for similar spaces.
- Available opportunities today will soon be leased, with future listings likely to be priced even higher.
Recommendation
While I am committed to advocating for your interests and making offers at levels you are comfortable with, it is crucial to recognize the ground-level reality. The tables are turning — landlords are no longer desperate, and holding out for better deals may result in paying more later.
This is a pivotal moment in the NYC office market. Strategic action today will protect you from playing catch-up tomorrow.
I’m happy to back up any of these numbers and provide additional articles supporting this outlook.
