After years of relentless office space availability increases, Manhattan has finally dipped below 100 million square feet of available space for the first time since 2020.
Headlines are calling this a recovery milestone—but does it actually signal a turnaround for the office market, or is it just a reshuffling of the deck chairs on a sinking ship?
There are multiple factors at play that will determine whether this represents a sustainable recovery or just a temporary statistical fix. The key question remains: Is demand actually rising, or is the market just shrinking around a lower baseline?
Read on to learn:
- What’s behind the leveling off of absorption rates?
- Why sublease space is disappearing faster than expected
- The surprising fate of all that extra office space
- What the future holds for NYC tenants and how to navigate it
A Market on the Move—But in Which Direction?
Manhattan’s office market saw its strongest leasing activity in five years in 2024, with 33 million square feet leased—a clear sign of momentum.
Absorption was also the highest in a decade at 7 million square feet. But before we declare victory, let’s dig into the numbers.
According to CoStar’s latest report, the rapid drop in available office space—over 9 million square feet in the latter half of 2024—comes down to three main factors:
- Improved Leasing Activity: The fourth quarter of 2024 saw 837 deals totaling 9 million square feet of new leases—one of the strongest leasing periods since the pandemic.
- Sublease Space Shrinkage: Available sublet space fell below 20 million square feet for the first time since 2020, suggesting that tenants are finally taking action on excess space.
- Office-to-Residential Conversions: Landlords desperate to unload vacant office properties have been pushing more aggressively for conversions. The third quarter of 2024 alone saw over 2 million square feet removed from the market.
So, let’s unpack the forces evolving the NYC office market...
Big Ticket Leases are Back.
Companies like Citadel, Bloomberg, and Blackstone made major commitments (500,000+ SF each), signaling that top-tier firms still see value in Manhattan office space.
Smaller deals also surged across the market, with 837 leases signed in Q4 2024, totaling 9 million square feet—one of the strongest leasing periods since the pandemic.
Financial services firms were particularly active, accounting for 40% of all deals in 2024. The high-end market witnessed unprecedented activity, with 28 new leases exceeding $200 per square foot and 212 leases surpassing $100 per square foot. Read more about the What the Flight to Quality Means For The Office Market.
Leasing activity has contributed to a tightening of Manhattan's office supply. The overall availability rate decreased to 17.9% in Q4 2024, the lowest in four years, with a reduction of 7.6 million square feet in direct space and 1.9 million square feet in sublet space over the year.
Space is Actually Being Subleased
New leasing activity is not just about new commitments—it's also signaling a shift in how tenants are handling their existing footprints. A major indicator of this trend is the sharp decline in available sublease space.
For the first time since 2020, available sublease space in Manhattan has fallen below 20 million square feet, a significant milestone in the market's recovery.
By the end of 2024, sublease availability had dropped by nearly 500,000 square feet in just one month, bringing the total down to 19.5 million square feet.
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“Companies are finally taking action on their excess space. We’re seeing tenants either subleasing their footprints at a faster pace or deciding to retain space they had previously put on the market.” -CoStar market analyst |
This contraction in sublease supply is a direct result of increasing demand, particularly for high-end offices.
Major financial and tech firms have been actively securing sublease deals at discounted rates, particularly in trophy and Class A buildings. In 2024, roughly 4.2 million square feet of sublease space was absorbed, with over 40% of that occurring in Midtown alone.
In comparison, at the height of the sublease glut in early 2021, Manhattan had more than 24 million square feet of sublease space on the market.
The current drop signals that companies are no longer in a holding pattern—they are making definitive decisions about their office strategies. If this trend continues, Manhattan’s sublease inventory could tighten further in 2025, reducing the downward pressure on rents that has plagued landlords since the pandemic.
And while declining availability sounds like a step in the right direction, the bigger picture suggests caution.
Office-to-Residential Conversions
A major driver behind this so-called "recovery" isn’t just new leasing—it’s the fact that office space is literally disappearing from the market.
In 2024 alone, nearly 5 million square feet of office space was removed for conversion to residential, hotels, or storage—more than triple the amount in both 2023 (1.54M SF) and 2022 (1.46M SF). This accelerated pace reflects landlords conceding defeat on struggling properties rather than an organic rebound in demand.
The third quarter of 2024 saw 2 million square feet removed from the market—the largest quarterly reduction of office space in recent history. Meanwhile, the availability rate tightened to 16.5%, its lowest point since September 2022.
With no major new office developments expected in 2025 and a growing pipeline of conversion projects, the supply side of the equation will continue to contract. But does that mean demand is truly surging? The numbers tell a more complicated story.
Of course, new leases are being inked, but is it at a rapid enough rate to solve the environment alone? Probably not. Availability numbers are being propped up by conversions.
Not to mention that most of the leasing gains are concentrated in high-end, amenity-rich spaces, leaving older office stock increasingly obsolete.
At the end of the day, Class B and C buildings are in trouble. More likely than not, they will end up sliced up into courtyards and residential dwellings than leased by J.P. Morgan.
Read more about the costly complexities of office conversions.
Takeaways for Tenants
Manhattan’s office market is evolving, but calling it a full recovery is premature. The reality? The market isn’t healing—it’s shrinking. And for tenants, that means a critical moment to secure deals while leverage is still in their favor.
- Leverage Landlord Pressure: Despite the leasing surge, many landlords are still desperate to fill space, making it an ideal time for aggressive lease negotiations.
- Consider Sublease Options: Available sublease space is finally shrinking—act now before high-quality sublet opportunities disappear.
- Think Long-Term: With office-to-residential conversions accelerating, the long-term viability of certain office locations is changing. Tenants should factor this into their real estate decisions.
The numbers paint a picture of a market in flux—one where landlords are desperately adjusting to survive rather than riding a true wave of renewed demand. As Manhattan's office market continues to shift, now is the time for tenants to take action. With landlords under pressure, opportunities for strategic lease negotiations are at their peak. But securing the right deal requires insight into what’s ahead.
To navigate this evolving landscape and make informed decisions, download your copy of Surviving the Office Apocalypse for Tenants. Gain crucial insights into leveraging market shifts, finding the best sublease options, and planning for the long-term viability of your office portfolio.
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