Off-market deals have been a common practice in residential real estate for a long time. Brokers discreetly get high-profile buyers into hot listings before spaces ever hit the open market, and \u2014 boom \u2014 they\u2019ve got a deal.\u00a0<\/p>\n
Lately, though, off-market deals have become a trend in commercial real estate, too, specifically in Manhattan\u2019s office market.<\/p>\n
SEE ALSO: Craig Panzirer, Rudin\u2019s Head of Leasing, Leans Into His Hard-Won Reputation<\/a><\/p>\n As available office supply continues to tighten and tenants scramble to secure high-quality space, many office owners in the borough are quietly keeping blocks of office space off the market to get eager and willing tenants into new leases faster, according to JLL<\/a>.<\/p>\n The tactic is one formed out of necessity. In an office market as fast-paced as Manhattan\u2019s today, neither landlords nor tenants can really afford to take their time and shop around, even if they wanted to wait for a specific moment or earn higher rents.<\/p>\n \u201cIt\u2019s less about holding back space because of the rents they can receive, and more about the pace of the leasing market,\u201d said Melanie O\u2019Brien, head of research at JLL. \u201cSo it\u2019s not that [landlords are] waiting for a certain moment. It\u2019s the fact that some of the things that they may have done prior to the space being available in the past \u2014 like marketing and setting up for the full launch \u2014 doesn\u2019t need to happen because tenants are moving very quickly.\u201d<\/p>\n Manhattan\u2019s office leasing totaled 10.06 million square feet in the third quarter of 2026, according to a report from Colliers<\/a>. That total was 16.2 percent above the five-year quarterly average of 8.66 million square feet and 19.2 percent higher than the 10-year average of 8.44 million square feet. Year-to-date demand reached 32.86 million square feet, the strongest comparable period since 2000.<\/p>\n This year\u2019s third quarter also happened to notch the strongest third quarter of office activity in Midtown South on record, with demand rising 10.7 percent year-over-year, according to Colliers.\u00a0 Plus, September\u2019s 64.76 million square feet of total available supply was Manhattan\u2019s lowest availability since August 2020 and 34 percent below the post-pandemic peak.<\/p>\n \u201cEverybody\u2019s coming back faster, and all of a sudden there\u2019s no supply,\u201d said Kirill Azovtsev, a vice chairman in Savills\u2019 New York office.<\/p>\n Millions of square feet are set to come online in the coming years with new developments \u2014 see Related Companies<\/a>\u2019 858,500-square-foot 625 Madison Avenue, Related and Oxford Properties\u2019 1.4 million-square-foot 70 Hudson Yards<\/a>, or BXP\u2019s 930,000-square-foot 343 Madison Avenue<\/a>, for example \u2014 but it hasn\u2019t stopped tenants from aggressively searching for space now, especially as supply continues to dwindle from conversions. As a result, deals get signed faster.<\/p>\n Enter the off-market appeal.<\/p>\n \u201cWhat I\u2019m hearing from brokers is really needing to set the tone with tenants that if you\u2019re slow or if you\u2019re indecisive, that space will go quickly,\u201d O\u2019Brien said. \u201cSome tenants have been burnt by that process, so then the next time they\u2019re more likely to try and move quickly and seek out that off-market opportunity. It\u2019s less about landlords demanding higher prices and waiting. It\u2019s mainly a product of the market.\u201d<\/p>\n It\u2019s also a product of brokers already knowing what space is going to become available before it\u2019s even online, which pushes landlords to get deals done faster, Azovtsev said.<\/p>\n \u201cOur job as a broker is go find that space,\u201d he said. \u201cWe\u2019re trying to anticipate a potential space that may open up, or where a potential availability may come from. \u2026 The space isn\u2019t being withheld. It\u2019s more so who is the first one who is going to find out, and then it never hits the market.\u201d<\/p>\n Most of the leases that end up off-market are for recently vacated, smaller blocks of space \u2014 usually roughly 5,000 square feet to 20,000 square feet across a floor or two \u2014 that landlords need to fill. Some tenants lease those spaces directly, but many end up subleasing the blocks for a last-minute space \u2014 a win-win for a landlord looking for a temporary fix.<\/p>\n There have been some bigger off-market leases lately, though.<\/p>\n At 71 Fifth Avenue, owned by a joint venture between Madison Capital and Lubert-Adler Partners, a source said a roughly 30,000-square-foot lease has been signed there for an artificial intelligence company. Not only did that deal happen before the space hit the open market, but the deal also secured some of the \u201chighest rents\u201d the building near Union Square \u201chas ever seen,\u201d the source said. Spokespeople for Madison Capital and Lubert-Adler Partners did not respond to requests for comment.<\/p>\n Another AI firm is discreetly looking for roughly 50,000 square feet in Midtown South, according to the source.<\/p>\n \u201c[AI tenants] really look for built immediate to-go space, and there\u2019s very little of it,\u201d said Evan Haskell, an executive vice president at CBRE<\/a>. \u201cThey\u2019re the ones who are having to scour the market, find these hidden spaces, and do whatever they can because there\u2019s just so little built space for them.\u201d<\/p>\n AI and Midtown South seem to go hand-in-hand in off-market deals. Plenty of early-stage technology and AI firms need a place to land \u2014 quickly \u2014 and they often look to Midtown South, particularly in SoHo or the Meatpacking District, according to Patrick Steffens, senior director of office leasing at Avison Young.<\/p>\n \u201cThere\u2019s next to no good space left in SoHo and the Meatpacking District,\u201d Steffens said. \u201cThe better buildings have the luxury of scarcity, and, when things are scarce, hidden is attractive from a marketing standpoint.\u201d<\/p>\n Most AI tenants are pursuing built-out, furnished spaces on short-term subleases and making rapid decisions, sometimes for more space than they currently need. Steffens said Avison Young is currently working with a \u201chandful\u201d of AI companies looking for off-market space, but space can get snatched up quickly.<\/p>\n \u201cThere were a handful of off-market subleases being circled It\u2019s all very confidential, especially when it comes to big-name companies.<\/p>\n This past August, Elon Musk\u2019s SpaceX completed its $60 billion acquisition<\/a> of Cursor, a popular AI-powered code editor and coding assistant developed by AI applied research lab and software company Anysphere.<\/p>\n Before SpaceX bought Cursor, the AI firm had office space spread across a few different buildings in SoHo. Following the acquisition, Cursor had extra office space left over, and brokers were able to find subtenants for that space off-market, according to a source with knowledge of the deals.\u00a0<\/p>\n It\u2019s unclear which buildings in SoHo were subleased as part of those deals. A spokesperson for Cursor could not be reached for comment.<\/p>\n AI transactions aside, some tenants are also taking up off-market space by simply exercising their right of first offer, a clause that requires a landlord to first present available space in the building to the current tenant before publicly marketing that space. If the tenant decides to expand, that space never hits the market.<\/p>\n There were recent cases of that at an office building along Park Avenue, where three tenants exercised their right of first offer and took spaces in the 50,000-square-foot range, according to a source.<\/p>\n \u201cThere can be value in having early conversations about potential availability, particularly when an existing tenant is looking to expand,\u201d said Jonathan Iger, CEO and president of Sage, which owns several office buildings in Midtown East. \u201cIt allows both sides to explore options and determine whether there\u2019s a fit before a space formally comes to market.\u201d<\/p>\n The amount of available office space that never hits the open market in Manhattan is unknown, but one thing\u2019s for sure: It\u2019s making a dent in the numbers. According to JLL, off-market deals are creating a \u201cshadow market\u201d that never shows up in the \u201cofficial\u201d availability rate.<\/p>\n Manhattan\u2019s office availability rate declined by 0.6 percent during the third quarter of 2026 to 12.4 percent, according to an office report from Colliers<\/a>, representing the 10th consecutive quarter in which availability tightened or remained unchanged and the longest such stretch since 2007.\u00a0<\/p>\n However, the \u201creal\u201d availability rate \u2014 when factoring in off-market leases \u2014 is actually a lot lower than it looks, according to JLL\u2019s O\u2019Brien.<\/p>\n \u201cIn certain submarkets, the sentiment is that it is lower than what it looks like on paper because we\u2019re always tracking backwards and looking at deals closed,\u201d O\u2019Brien said. \u201cWe know that with those deals that are yet to be signed, they\u2019re in the administrative stage where we can\u2019t reflect it in the numbers just yet, but it\u2019s probably already gone.\u201d<\/p>\n Most landlords signing off-market deals are either choosing specific new tenants to bring in \u2014 like desirable AI or finance firms \u2014 or moving existing tenants around within their portfolios to free up larger, more flexible blocks of space. It\u2019s largely the latter, according to O\u2019Brien.<\/p>\n Because availability is so low in high-activity markets like Midtown \u2014 where Colliers found the availability rate decreased 0.4 percent from the second quarter to 11.9 percent during the third quarter of this year \u2014 many landlords are freeing up blocks in Midtown and moving their existing tenants to different buildings within their portfolios.<\/p>\n \u201cThose are the type of behind-the-scenes conversations that have permeated the last quarter versus earlier in the year,\u201d O\u2019Brien said.<\/p>\n But those conversations aren\u2019t without risk.\u00a0<\/p>\n \u201cOff-market deals are risky for the landlord because if they don\u2019t open it up to the market, then they don\u2019t know the value of it, or they don\u2019t know how much the market would\u2019ve paid for it,\u201d Azovtsev said.<\/p>\n Manhattan\u2019s average office asking rent increased by 0.4 percent quarter-over-quarter during this year\u2019s third quarter to $78.36 per square foot, the highest since July 2020, according to Colliers. Year-over-year, the average rent climbed 4.6 percent, the sharpest year-over-year increase in a third quarter since 2019. In addition, Class A pricing hit a record high of $85.45 per square foot.<\/p>\n Some office buildings are blowing those rents out of the water.<\/p>\n Late last month, hedge fund manager Castle Hook Partners leased<\/a> the entire penthouse of Related Companies\u2019 upcoming 625 Madison Avenue for $375 per square foot, surpassing the former New York City record<\/a> of $327.50 per square foot for a private family office\u2019s lease at Soloviev Group\u2019s 9 West 57th Street.<\/p>\n \u201cIn New York, we\u2019re seeing $300-per-square-foot deals,\u201d O\u2019Brien said. \u201cThe market is really responding to this lack of supply.\u201d<\/p>\n Those high rents put pressure on smaller landlords to raise their prices, and even more pressure on tenants to find affordable office space.\u00a0<\/p>\n It doesn\u2019t help those tenants that Manhattan\u2019s office supply pipeline has collapsed 80 percent, and that there\u2019s currently only 10 blocks of office space over 250,000 square feet available in Midtown, according to Haskell. Factor in vacant buildings facing special servicing or capital stack issues, and that number probably goes down to around four buildings, Haskell added.<\/p>\n \u201cWhen you really start to peel back the onion, many of those blocks are also short-term sublease space with four years left. No large tenant is going to want that,\u201d Haskell said.<\/p>\n To make things even more difficult for searching tenants, New York City\u2019s wave of new office developments won\u2019t come online for years, and those new developments are already roughly 70 percent spoken for following large deals with anchor tenants who signed years in advance<\/a>, according to Haskell.<\/p>\n All the while, law firms<\/a> are still gobbling up the only large chunks of space left, and some companies are even marking their territory across several office buildings, leaving no space for smaller tenants looking to set up in the Big Apple (for example, J.P. Morgan expanding its offices at both 390 Madison Avenue<\/a> and Five Manhattan West<\/a> after opening its own 2.5 million-square-foot office tower at 270 Park Avenue<\/a> \u2014 do they really need all that space?).<\/p>\n In the meantime, it seems like landlords are holding all the power, and that tenants might need to resort to off-market deals to secure office space \u2014 if they can find them.<\/p>\n
around in the last two weeks or so that we missed out on because we were too small,\u201d Steffens said. \u201cIt was for groups trying to sublease two or three floors \u2014 we only needed one.\u201d<\/p>\n