The 10.4 Million SF Quarter: Manhattan Office Leasing Is Not in Doom Loop — It's in Recovery

Two things are simultaneously true about Manhattan's office market, and they complicate the story considerably for anyone making investment decisions based on last year's narrative.

First: office leasing activity in Q1 2026 totaled 10.4 million SF, according to Avison Young — roughly in line with Q1 2025 and 41% above the 2020–2024 average. Availability has now compressed to 14.6%, down from 17.3% a year ago and 540 basis points below the Q3 2024 peak. Trophy availability is down 22% year-over-year; Class A availability is down 18%. Sublet inventory sits at just 12.1 million SF — only 2.7% higher than pre-pandemic Q2 2019.

Renewals, which accounted for 50% of leasing activity in 2023, now account for just 20%. New and expansion leases are 80% of current activity — a decisive shift that reflects tenant confidence rather than the lease-expiration defensiveness that defined 2022 and 2023. FIRE tenants lead expansion and new leasing, followed by tech, then law firms — together more than 60% of new and expansion-driven demand.

Second: the NYC Comptroller's November 2025 spotlight report tracked assessed office valuations against the 2022 'doom loop' scenario published by academic researchers. The optimistic scenario had valuations rising moderately in FY2025 and FY2026, accelerating in FY2027. The pessimistic scenario had them falling steadily. Through FY2026, actual outcomes have tracked the optimistic case. Tax levies on residential property have also exceeded expectations.

What's happening is not a return to 2019. Average rents remain below pre-pandemic levels after adjusting for inflation, and availability — though improving — still runs meaningfully above the pre-pandemic norm. American Express committed to 2 World Trade as its new headquarters. Bank of America signed a 20-year commitment. The AI tenancy boom is real, and concentrated in Class A product.

But the implication for investment is that the 'conversion versus leasing' binary owners faced in 2023 has become more nuanced. Trophy and Class A Manhattan office now has a bid. Secondary product — the 1961–1990 Midtown stock with deep floorplates — is still the conversion candidate. The pricing gap between those two tiers is now wider than at any point in the post-pandemic cycle.