New York City

Commercial Real Estate Advisors

Top 3 Insights for New York City’s Office Market in 2025

by
New York City commercial real estate

  • Highlight: The assessed market value of NYC office properties increased by 4.4% to $205 billion in Fiscal Year 2025, up from $196.2 billion pre-pandemic, driven by robust leasing activity. 
  • Lowlight: New York City, along with other major metropolitan areas like Boston and Chicago, is at the forefront of a severe decline in office completions across the U.S., with a projected 73% drop from peak levels. 
  • General Outlook: The office market faces headwinds, including weakening demand, rising vacancies, and tenant downsizing. Properties with high-quality amenities are better positioned to navigate these challenges. 

The New York City office market has demonstrated remarkable resilience and adaptability as it transitions into 2025. A significant rebound in office leasing activities made its mark in 2024. Manhattan’s year-to-date leasing activity reached 23.1 million square feet by the third quarter of 2024, marking a 25.1% increase compared to the same period in 2023, as reported by global commercial real estate services firm Avison Young.  

This resurgence has been driven by a diverse range of industries including technology, finance, and retail, signaling a robust demand for office spaces across the city. Despite this positive momentum, the market continues to face challenges. The overall availability rate in Manhattan stood at 18.7% in the third quarter of 2024, reflecting a slight decrease from previous quarters but still indicating a substantial amount of vacant space.  

Additionally, the shift towards hybrid work models and the increasing emphasis on sustainable and flexible office environments are compelling landlords to invest in modernizing older properties to meet evolving tenant expectations. 

NYC office property values surged in FY2025, exceeding pre-pandemic levels due to strong leasing, but a sharp decline in new office construction poses significant challenges. (Photo courtesy of Ramil Ugot via Pexels)

Booming Class A Office Demand 

The revitalization of the office market has had several positive implications for New York City’s commercial real estate landscape. Notably, the total assessed market value of office properties rose by 4.4% to $205 billion in fiscal year 2025, up from $196.2 billion in fiscal year 2020, according to a CoStar report. This increase has contributed to higher property tax revenues, bolstering the city’s fiscal health. Furthermore, the influx of leasing activity has led to a surge in employment within the real estate sector, with office-using employment reaching approximately 1.5 million by the end of 2024, according to a Newmark report. 
 
The demand for premium office spaces has also spurred new construction projects, with developers focusing on high-end properties that cater to tenants seeking modern amenities and sustainable designs. This trend is expected to address the anticipated shortage of Class A office spaces, with vacancy rates in this segment projected to return to pre-pandemic levels by 2027.  

Demand for premium office spaces in NYC is driving new construction of high-end properties. (Photo courtesy of Reynaldo Brigantty via Pexels)

Older Buildings Face Woes 

Across the U.S. commercial real estate market, new supply is significantly declining. This slowdown is attributed to a confluence of challenges, including elevated construction and financing costs, coupled with labor shortages. The most dramatic impact is projected to occur in the office sector, with a forecasted 73% reduction in completions from peak levels, particularly in major cities like Boston, Chicago, and New York, according to JLL’s Global Real Estate Outlook 2025.  

The persistence of high vacancy rates, particularly in older buildings lacking modern amenities, also poses a significant concern. Additionally, the implementation of environmental regulations, such as New York’s Local Law 97, which enforces fines on landlords not meeting specific carbon emission thresholds, presents both a challenge and an opportunity. Landlords are now compelled to invest in energy-efficient upgrades to comply with these standards, potentially increasing operational costs in the short term but leading to more sustainable and attractive properties in the long run.  

High vacancy rates in older, outdated buildings, coupled with the financial and operational challenges posed by environmental regulations, necessitate significant investments in property upgrades in the NYC office market. (Photo courtesy of Fritz Hoste via Pexels) 

Modern and Flexible for 2025 

The outlook for New York City’s office market in 2025 is characterized by a dynamic interplay of recovery and adaptation. The significant increase in leasing activities and property valuations in 2024 underscores the market’s resilience and the sustained demand for office space in the city. However, challenges such as high vacancy rates in older buildings and the slow completion of new offices necessitate strategic investments and innovations from stakeholders. 

The emphasis on modern, sustainable, and flexible office environments is likely to shape the future landscape of New York City’s commercial real estate. Developers and landlords who proactively address these trends by upgrading existing properties and investing in new constructions that meet the changing demands of tenants will be well-positioned to capitalize on the opportunities that 2025 presents. (NYCCREA)