SEE ALSO: New York-Based Henry AI Has a New End-to-End Deal-Making Portal<\/a><\/p>\n Even second-generation office space in a 12-story, mid-block building can ignite a battle these days. The Rosen family\u2019s 151 West 26th Street in Chelsea recently received a flurry of offers for a 17,610-square-foot availability on its top floor, according to Max Koeppel, director of leasing at Koeppel Rosen<\/a>, which operates the family\u2019s buildings.\u00a0<\/p>\n The field was narrowed to three candidates, including two AI companies. All three applicants countered Koeppel Rosen\u2019s counter-proposal, and the ensuing back-and-forth saw the originally $56-per-square-foot space land offers of $60 to $70 per square foot.\u00a0<\/p>\n While the return-to-office wave and conversions have progressively eaten up the city\u2019s office supply, landlord representatives and tenant brokers alike trace the current frenzy to the AI boom. These companies, flush with investor capital, are growing too fast to wait on landlord build-outs.\u00a0<\/p>\n In some cases, these AI firms are doubling or even tripling in size<\/a> in the span of a year.\u00a0<\/p>\n \u201cAI companies will take 15,000 square feet today, then they need 30,000 in a year from now, and 60,000 the following year,\u201d Koeppel said.\u00a0<\/p>\n With sublease supply at new lows, companies have to compete for the same coveted turnkey office spaces in neighborhoods that attract techy crowds.\u00a0<\/p>\n \u201cThey [AI companies] are overwhelmingly the tenants who are getting into these bidding wars in Midtown South,\u201d said Benjamin Bass, vice chairman at JLL<\/a>\u2019s brokerage division.\u00a0<\/p>\n \u201cIt is as close to just kind of like a circus or a frenzy as I\u2019ve ever seen,\u201d Bass added.<\/p>\n Craig Deitelzweig, president and CEO at owner Marx Realty<\/a>, said he hasn\u2019t seen leasing velocity like this for two or three decades. Back then, large finance firms and ill-fated dot-com companies made a lot of noise along prime office corridors.<\/p>\n Demand appears a lot broader now, Deitelzweig said, spanning large submarkets and a more diverse array of industries, from the buzzy tech startups to century-old law firms<\/a>.<\/p>\n New York City\u2019s office market has yet to make a full recovery from its post-pandemic losses, but it\u2019s making impressive progress. Manhattan\u2019s total available office supply fell to 65.4 million square feet in August, according to Colliers data, the lowest since September 2020. Sublet supply is at 2019 lows, and office space continues to be taken off the market for residential conversions.\u00a0<\/p>\n Midtown, in particular, notched its lowest availability since March 2020, and its average asking rent of $84.68 per square foot hovers just below its pre-pandemic benchmark. Its counterparts in Lower Manhattan and Midtown South still have a long way to go, but downtown asking rents have climbed for nine straight months, and Midtown South accounted for 47 percent of office demand in August.\u00a0<\/p>\n If appetites remain at the current pace through the end of the year, Manhattan\u2019s annual leasing volume would be the highest since 2000, according to Colliers.\u00a0\u00a0\u00a0<\/p>\n The fierce demand for quality office space is hastening the pace of transactions. Koeppel compared the present moment to the pre-pandemic heydays of WeWork and Nu Hotel.<\/p>\n \u201cAt their peak, they were adding so many square feet a month that tenants didn\u2019t have the chance to look at it, consider it, or negotiate a proposal because WeWork moved so quickly<\/a>,\u201d Koeppel said. \u201cAfter COVID, brokers have a lot of options of spaces to show again. But as the market has really picked up, there\u2019s less options for what a tenant needs now, and it\u2019s not just one or two companies.\u201d<\/p>\n In March, Ford Models inked an 11,986-square-foot lease<\/a> at the Rosen family\u2019s 36 East 31st Street. The modeling agency\u2019s broker had called Koeppel looking for availability in the portfolio and toured an office space that same day.\u00a0<\/p>\n Ford Models submitted a proposal three hours later, Koeppel said. Terms were agreed upon the next morning, and the lease was signed within two weeks. That\u2019s a \u201cridiculously fast\u201d turnaround time in the commercial real estate world, Koeppel said.<\/p>\n In ordinary times, it\u2019s not uncommon for negotiations between landlord and tenant to go through three or four rounds of proposals, and the time between an initial tour and a signed lease can stretch across weeks or even months. And it\u2019s not limited to Midtown South\u2019s tech crowd.<\/p>\n \u201cI\u2019m very familiar with Midtown examples of high-end financial service companies that get excited about space, and there\u2019s multiple offers,\u201d Bass said.<\/p>\n At Deitelzweig\u2019s properties, bidding wars are happening more often than not this year.<\/p>\n \u201cThis is probably the first time in my career where I\u2019ve received proposals before the tenant has even toured the space,\u201d Deitelzweig said. One West Coast company recently sent its broker to film a walkthrough of the office space for them. The company sent an offer the same day, he said.<\/p>\n Brokers emphasize that there isn\u2019t a shortage of office space \u2014 just a shortage of the space tenants are clamoring for. The furnished, high-quality spaces most tenants want are especially scarce.\u00a0<\/p>\n The preference is a reversal from a pre-COVID era when Class B supplies were the asset in low supply, said David Falk, Newmark<\/a>\u2019s New York tri-state region president.<\/p>\n \u201cBefore COVID, it seemed like there was more demand for the less expensive space, lower in the building, because there were less tenants willing to pay the higher rent,\u201d Falk said. \u201cToday, it\u2019s flipped. It tells you that people are looking to be in space that is invigorating, and they\u2019re willing to pay for higher quality.\u201d<\/p>\n Competitive sublease situations are few and far between, and sublandlords are finding that they can command premiums. Snapchat parent company Snap took over a 198,983-square-foot sublease<\/a> from Verizon at Vornado Realty Trust<\/a>\u2019s 2 Pennsylvania Plaza in early August, striking a long-term deal at a premium to Verizon\u2019s own rent obligation.<\/p>\n This immediate demand is typically in the 5,000- to 30,000-square-foot range, brokers say \u2014 a sweet spot that allows for big bids. Because the total extra dollars are small, well-funded tenants looking for smaller offices will aggressively overpay to win a deal.<\/p>\n Asking rent at a Rosen family space at 1261 Broadway spanning just 3,612 square feet climbed from $44 per square foot to $53 in a recent bidding war, Koeppel said.<\/p>\n That doesn\u2019t mean demand is limited to the deepest pockets.<\/p>\n Koeppel\u2019s team ultimately rejected the highest bidder \u2014 an AI company \u2014 for the space at 151 West 26th Street. The tenant was looking to more than triple its office footprint, he said, but its financial runway didn\u2019t inspire confidence. Another firm, one with better credit and an appropriately lengthy term agreement, won out.\u00a0<\/p>\n Adam Henick, co-founder of Current Real Estate Advisors, said he\u2019s more frequently seeing deals play out in favor of the best credit tenant over the one with the deepest pockets.<\/p>\n \u201cIt becomes somewhat of a beauty pageant between the credit profiles of the incoming tenants, which we\u2019re seeing a lot of,\u201d Henick said.\u00a0<\/p>\n Despite the glut of motivated tech tenants, echoes of the dot-com boom and bust are keeping landlords wary of tenants flush with cash but still in their infancy, Falk said.<\/p>\n \u201cIf a broker knows the tenant has strong credit, they\u2019re going to go into the offer pounding their chest,\u201d he said, \u201csaying, \u2018I have the right tenant for you. We could quickly consummate a deal. You\u2019re gonna love the tenant. You\u2019re gonna love the credit, and we have nothing standing in our way.\u2019 \u201d<\/p>\n The caution can fall the hardest on younger tenants in Midtown South, where one of Falk\u2019s West Coast clients is shopping for 30,000 square feet in Midtown South. As a more established company, they\u2019re finding special favor.<\/p>\n \u201cA lot of tenants that we\u2019re competing with are literally 2 years old,\u201d Falk said. \u201cSo the landlord responded very quickly to us.\u201d<\/p>\n An extraordinary office market requires creative solutions for tenant brokers, including reaching out to landlords before their spaces even hit the market.<\/p>\n \u201cSometimes before our tenant\u2019s lease comes up, you\u2019re already talking to a potential tenant about that space,\u201d said Deitelzweig. \u201cThat\u2019s also helpful in renewing tenants, because they know that they have to move quickly as well.\u201d<\/p>\n Speed is sometimes required to get any response at all. When an office space is in high demand, brokers have said initial requests for proposals may be ignored outright.\u00a0<\/p>\n \u201cIf I\u2019m on the landlord\u2019s side and it\u2019s a space in high demand with a lot of activity, and a broker comes to us with a request for proposal versus an aggressive offer on the space, they\u2019re doing a disservice to the tenants, because we\u2019re not even going to respond,\u201d Falk said.<\/p>\n In more mature submarkets, like Midtown, tenants\u2019 proposals are no longer gunning for every possible flexibility, concession, expansion or renewal possible. The scales have tipped back in favor of landlords.<\/p>\n \u201cThey\u2019re not necessarily overpaying, but they\u2019re not doing the typical process of giving a fairly aggressive proposal,\u201d Falk said of tenants.\u00a0<\/p>\n Competition is so high that Henick is sometimes advising his clients to ignore initial asking rents on desirable spaces.\u00a0<\/p>\n \u201cWe said, \u2018We\u2019re going to go tour this, but ignore the price that\u2019s being told to you from the landlord,\u2019 \u201d Henick said. \u201cBecause we know there are tenants out there who are going to happily pay more for this.\u201d<\/p>\n Furnishing Marx Realty\u2019s spaces to attract tenants no longer feels like a necessity, Deitelzweig said, and rising rents<\/a> haven\u2019t dampened leasing velocity. In fact, he\u2019s been wondering if, given the interest they\u2019re getting, their asking rents are still too low.\u00a0<\/p>\n \u201cWe love bidding wars,\u201d Deitelzweig said.<\/p>\n![\"Craig](\"https:\/\/www.newsbeep.com\/us-ny\/wp-content\/uploads\/2026\/09\/craigdeitelzweig-31-Edit-WEB.jpg\" "\\"Office")
Craig Deitelzweig at Marx Realty\u2019s 10 Grand Central. PHOTO: Chris Sorensen\/for Commercial Observer<\/p>\n