Remote Work Pullback and Improving Manhattan Economy Boost NYC Office Market

New York City and Miami have been leading the return-to-office trend, closing their post-COVID-19 pandemic office visit gaps.

Office buildings in New York City on March 4, 2021. Spencer Platt/Getty Images

In a sign of recovery in Manhattan, office real estate is once again drawing the interest of investors.

In August, real estate investment firm RXR announced the purchase of a 42-story, Class A skyscraper at 590 Madison Ave. for approximately $1.1 billion, the highest-priced deal since Alphabet paid $2.1 billion to acquire the 550 Washington St. building.

After a five-year slump, the New York City office market appears to be coming back to life amid tightening remote work rules by employers, which require employees to spend time in the office.

According to data compiled by Placer.ai in July, New York City and Miami have been leading the return-to-office trend, closing their post-COVID-19 pandemic office visit gaps. New York City’s office visits rose by 1.3 percent above July 2019 levels, while Miami’s visits were just 0.1 percent below.

Adding to this positive trend for office space is an improving Manhattan economy. According to a second-quarter Manhattan office report by Cushman & Wakefield, New York City’s total employment reached a record 4.8 million jobs as of May, up by 2,600 for the quarter and up by 56,200 from a year earlier.

“The New York office market is on a recovery path as of Q1 2025, driven by improving foot traffic and projected office-using employment growth of 0.5 percent over the next two years,” a Moody’s report published in May states.

“Although the historical correlation between office-using employment and occupied office stock has weakened over the last two decades, the labor market remains resilient.”

The return-to-office trend and the improving Manhattan employment situation have helped improve the balance between demand and supply, with leasing volume surging to 8.4 million square feet in the second quarter—the highest quarterly total in six years, according to a Cushman & Wakefield report.

Year-to-date new leasing reached 15.7 million square feet, an annual surge of 38.3 percent that exceeds the increase in the first eight months of 2024.

Financial services tenants continued to drive demand, accounting for 36.8 percent of leases of 10,000 square feet or more year-to-date—up from 29.6 percent for the same period in 2024.

The improvement in demand and supply balance has helped drive vacancy rates lower for the fourth consecutive quarter, down by 10 basis points, to 22.6 percent. As a result, the borough’s overall rents are up, led by gains in Midtown Manhattan, south Manhattan, and downtown Manhattan.

A couple of PropertyShark charts provide further insight into the revival of the New York City office real estate market in the second quarter: Sales closings and median price per square foot were up by 15.8 percent and 17.5 percent, respectively, year over year.

Challenges Ahead

However, a close examination of these charts over the past 10 years shows that the New York City office market has been moving sideways rather than following a decisive upward or downward trend.

According to the Moody’s report, there are a couple of challenges ahead for the office market, such as economic uncertainty and a significant wave of incoming construction that could keep vacancy rates elevated above their long-term average.

“While progress is evident, the recovery’s pace will likely remain subdued, with vacancy rates in the New York office market staying higher for longer,” the Moody’s report states.

Steve Morris, founder and CEO at Newmedia.com, sees another driver behind trophy asset deals such as the 590 Madison sale: discount prices.

“RXR’s strategy with 590 Madison, acquired for $1.1 billion, is one we see replicating up and down corridors like this,” he told The Epoch Times.

“The institutional buyers shrink in number; price and supply combine to help convert the most desirable assets into anchors; the business tenants in our clients’ portfolios, particularly the legal and finance ones, consolidate to a smaller total square footage of higher quality space. This is a solid time to be a Manhattan trophy landlord.”

Beginning of a Trend

Morris sees the RXR deal as the beginning of a trend rather than an aberration.

“The institutional buyers with dry powder are getting hyper-selective, demanding buildings whose fundamental vectors of location, tenancy, and amenity stacks favor flight to quality,” he said.

Morris said his company’s online marketing for high-end office buildings is 60 percent higher than for mid- and lower-tier offices a year ago, reflecting a divergent trend: Top-tier buildings are thriving, while lower-quality ones lag, in line with RXR and other investors’ strategies.

He sees confidence in the market returning, with institutional investors teaming up to mitigate risks.

“Behind the headline acquisition price for 590 Madison is a complex network of senior credit from Apollo, institutional partners like Elliott, and a $1 billion credit play with Liberty Mutual,” Morris said.

“In my experience, this kind of deal signals the next wave of flows as other investors get reassured that the heavy hitters are ‘doing the work’ of due diligence and underwriting.”

He sees these highly structured deals in supply-constrained submarkets as a bullish sign for the market.

“That’s the signature of institutional real estate investors starting to ‘dip their toes’ into the office market again, but it’s the Manhattan office market only if it’s the most resilient properties,” he said.