The Office Market’s Next Phase Takes Shape in Manhattan

The Manhattan office market entered 2026 no longer defined by hesitation, but by selectivity. According to Avison Young’s Q4 2025 Manhattan Office Market Report, leasing activity reached 39.8 million square feet in 2025, the highest annual total since 2019 and a meaningful signal that tenant confidence has returned, even if footprints have not fully followed.

This was not a volume-driven rebound. It was a quality-driven one.

Forty-five leases larger than 100,000 square feet closed during the year, an outcome that would have seemed unlikely even eighteen months earlier. Large occupiers are clearly willing to commit again, but only when space quality, building performance, and location align with long-term operating plans.

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That demand is tightening the market in visible ways. Manhattan’s overall availability rate fell to 15 percent by year-end, down from 18 percent a year earlier and the lowest level since 2020. Nearly 16 million square feet of direct and sublet space was removed from availability over the past year, a contraction that has been felt most acutely at the top of the market.

Trophy buildings are absorbing demand at a pace far outstripping the rest of the inventory. In 2025, Trophy assets captured 55 percent of all leasing activity despite representing a much smaller share of total supply. Tenants are no longer sampling premium space. They are prioritizing it.

As Trophy availability tightens, choice is diminishing. Decision timelines are shortening. Competition is returning quietly, without the bidding wars of past cycles but with a renewed sense of urgency.

Some spillover is beginning to emerge. Class B assets increased their share of leasing modestly, though the gains remain concentrated in well-located, recently renovated buildings rather than across the broader stock. Renovation continues to matter, and the rent data reinforces that point. Across Manhattan, renovated buildings command materially higher rents than their pre-renovation counterparts, with Trophy and upper-tier Class A assets capturing the greatest upside.

Tenant behavior also signals a shift in mindset. New and relocation deals accounted for nearly 59 percent of leasing volume in 2025, up sharply from prior years dominated by renewals and short-term extensions. Tenants that were previously waiting for clarity are now acting on it.

Deal sizes reflect that pragmatism. Activity skewed toward mid-sized leases, particularly in the 10,000 to 50,000 square foot range, suggesting right-sizing rather than expansion is driving demand. The office is being recalibrated, not abandoned.

Utilization data tells a complementary story. By late 2025, Manhattan office buildings were operating at roughly 74 percent of their pre-pandemic busyness levels, significantly outperforming the U.S. average of about 62 percent. Manhattan has exceeded the national average consistently since 2021, a reflection of both stricter return-to-office expectations and the structural advantages of dense, transit-oriented markets.

This is where Manhattan’s experience becomes especially instructive for the rest of the country.

In San Francisco, office utilization remains materially lower, weighed down by tech’s slower return and an oversupply of space built for a growth cycle that has not fully reasserted itself. Chicago has seen improving leasing in prime corridors, but elevated vacancy persists across large portions of its downtown inventory. Los Angeles continues to grapple with weak utilization tied to long commutes and decentralized employment patterns.

Sun Belt markets tell a different story, but not an entirely optimistic one. Austin and Phoenix still contend with elevated vacancy following years of aggressive construction. Nashville and Atlanta have seen pockets of strength, particularly in new Class A buildings, but absorption remains uneven. In many of these markets, availability is being worked down slowly rather than decisively.

Manhattan shows what recovery looks like when demand concentrates instead of diffuses. Trophy-led absorption, shrinking sublet inventory, longer lease terms, and selective spillover into upgraded Class B assets are not unique phenomena. They are simply appearing earlier and more clearly in markets with deep labor pools, transit infrastructure, and employers willing to enforce in-person work.

Rents remain nuanced even here. Base rents for Trophy and Class A space have stabilized, with some softening as top-tier blocks were absorbed earlier in the cycle. Net effective rents remain well below asking levels, supported by concessions that are still necessary to close deals. Even so, the gap between base and net rents is beginning to narrow in the best buildings as supply tightens.

Lease terms are lengthening as well. Trophy and Class A leases now average close to a decade, reflecting growing confidence from both landlords and tenants that the worst volatility is behind them.

The broader takeaway for 2026 is not that the office market has fully recovered. It is that the market has clarified. Demand has narrowed, expectations have hardened, and the divide between buildings that work and buildings that do not is widening.

Manhattan is not immune to those pressures. But it is demonstrating how the next phase of the U.S. office cycle is likely to play out: unevenly across metros, unevenly within cities, and increasingly defined by quality, capital investment, and operational relevance rather than square footage alone.