Manhattan Office Shows Strength in a Still Lackluster Market

The Manhattan office market is still struggling with new development activity, with only one project breaking ground year-to-date through September, while five other projects were delivered. Still, Manhattan’s investment activity put the metro in the leading spot for total sales volume and average sale price per square foot, according to CommercialEdge data, despite the rise of discount purchases and all-cash deals.

Manhattan’s office sector showed a slight improvement in vacancy, with a number of significant leases inked as of September and the average rate down 90 basis points year-over-year showing some signs of health.

Large completions and a steady pipeline

In September, Manhattan had 2.6 million square feet of office space under construction, accounting for 0.6 percent of existing stock—below the 1.0 percent national figure. The metro outperformed Washington, D.C. (0.5 percent) and Chicago (0.3 percent), while Boston led the rankings with 4.6 percent. When factoring in projects in planning stages to that figure, the borough’s share reached 2.4 percent of existing stock.

The largest development currently underway remains 270 Park Ave., the 2.5 million-square-foot Class A+ high-rise developed by JPMorgan Chase. Reaching 1,388 feet, the company’s new global headquarters is expected to come online in 2025.

Another notable project is L&L Holding Co., Columbia Property Trust and Cannon Hill’s Terminal Warehouse Redevelopment. The 1891-built industrial facility is being converted into a 1.3 million-square-foot office and retail space scheduled to be delivered in 2025..

Development continued in line with the current national trends, with a single 51,530-square-foot office building breaking ground in the metro, while developers delivered 3.1 million square feet of office space across five properties.

Office-to-residential conversions are a boost

Office-to-residential conversions remain a focal point for investors in the sector. According to CommercialEdge’s Conversion Feasibility Index, Manhattan’s office stock has 53.1 percent of its office stock in Tiers I and II by conversion potential. This makes the borough the leading spot for office-to-residential repurposing potential in the country.

Developers are already working on projects, with Silverstein Properties’ 55 Broad conversion project now open. The company worked with Metro Lofts on the conversion of a 36-story office building, which resulted in the addition of 571 high-end residential units to the borough’s rental stock. The property had a CFI score of 92, indicating high conversion potential, CommercialEdge data shows.

Elsewhere, a major office-to-residential project is lined up for the building that housed the Archdiocese of NY. The Vanbarton Group is the new owner of the property at 1011 First Ave., in Midtown Manhattan, that’s lined up as a future rental property, pending approval. The office asset has a CFI score of 95, indicating even more elevated conversion potential for the asset.

Manhattan office investments accelerate

Year-to-date through September, investors in Manhattan traded a total of $2.7 billion across 32 properties. The sales volume marks a 103.3 percent increase compared to the same interval in 2023. The metro kept its leading spot across the best-performing markets in the U.S. in terms of investment volume, with Washington, D.C. and the Bay Area following, with $2.3 billion and $1.7 billion, respectively.

The average sale price per square foot reached $379 in September, more than double the national average of $167 per square foot. When compared to other gateway markets, Manhattan was the priciest, followed by Los Angeles ($320 per square foot), the Bay Area ($279), San Francisco ($267) and Washington, D.C. ($235).

One major deal was the $560 million sale of 980 Madison Ave. Bloomberg Philanthropies purchased the five-story, 118,635-square-foot office building on the Upper East Side. RFR Realty sold the asset after it defaulted on its $197.6 million CMBS loan.

Another notable transaction was the $320.2 million sale of 250 Park Ave., a 543,292-square-foot office property in Manhattan’s Plaza District. JPMorgan Asset Management bought the 21-story building from AEW Capital Management, which owned the property since 1998.

Vacancy sees some improvement

As of September, Manhattan’s office vacancy rate reached 16.8 percent, down 90 basis points over a 12-month period and below the national rate of 19.5 percent. Only Boston (16.4 percent) and Los Angeles (16.3 percent) performed better than Manhattan, while even larger office vacancies were recorded in Washington, D.C. (17.7 percent), the Bay Area (25.3 percent) and in San Francisco (27.6 percent).

Manhattan also maintained its position as the priciest market for office leasing, with asking rents averaging $67.93 per square foot—more than double the national average of $32.89 per square foot. Across gateway metros, only San Francisco hit a similar figure at $67.32 per square foot, trailed by Boston ($57.98 per square foot) and the Bay Area ($54.74 per square foot).

In August, Christie’s signed a 25-year renewal at the Rockefeller Center, in a 770,282-square-foot office midrise owned by Tishman Speyer. The London-based auction house has been a tenant here since 1997 and will continue to occupy 400,000 square feet at the property, where its U.S. headquarters is located.

Bloomberg LP also signed a significant deal earlier this year: The company inked an 11-year extension at 731 Lexington Ave., fully occupying the 946,815-square-foot building. Bloomberg moved to the tower in 2005, initially taking 679,000 square feet.

Manhattan is still a flex office hotspot

The coworking sector in Manhattan reached approximately 11.2 million square feet—the largest flex office inventory in the U.S. The metro’s share of coworking space as percentage of total leasable office space stood at 2.2 percent, on par with Los Angeles and surpassing Chicago (2.0 percent), Boston (1.8 percent) and Washington, D.C. (1.6 percent).

The flex office provider with the largest footprint in Manhattan remains WeWork, with its locations totaling 2.4 million square feet. The company is followed by Industrious (1.3 million square feet), Regus (727,600 square feet), Convene (567,550 square feet) and Spaces (555,000 square feet).

Earlier this year, Industrious signed a lease extension and expansion totaling 27,630 square feet at 860 Broadway. During the same period, Convene also expanded its footprint at 360 Madison Ave. with 22,519 square feet, bringing its total commitment at the 25-story building to 68,000 square feet. The company is occupying three full floors at Stawski Partners’ nearly 360,000-square-foot property.