The more you put into your office properties — the more they're worth. That's at least the case in Manhattan. In the post-pandemic world, tenants in the sector continue to drive up demand for Class A and trophy product, with potential for Class B assets to catch up if and when financing becomes more favorable.
A recent report from Avison Young finds that average base rents spiked by roughly 27 percent to $82 per square foot on Manhattan buildings that were renovated after 2018. By asset type, trophies saw the biggest jump, rising by $26 per square foot to $106 per square foot. By submarket, Midtown stood out with rents surging by 39 percent to $82 per square foot.
"Owners who have invested right in these properties have benefited from it," Danny Mangru, office lead of market intelligence at Avison Young, told GlobeSt.
"You're seeing a pretty big delta between post-renovated buildings versus pre-renovated buildings across Manhattan."
Amenities That Are in Demand
These renovated buildings, of course, offer a modern appeal that attracts tenants. Vikrant Ghate, manager of market intelligence at Avison Young’s New York office, said that more premium amenities are in demand for renovations such as rooftop terraces and "tech-enabled" settings.
To add to that point, Mangru said the needs differ by tenant. For example, smaller and mid-sized ones are valuing environmentally friendly features and conference centers. Larger ones, meanwhile, are going more towards terraces, exclusive lounges and communal space.
Potential Around Class B and Other Submarkets
Considering the premium that modern buildings in Manhattan today command, where is the potential? Simply put, Ghate sees the most upside in Manhattan's Downtown and Midtown areas.
"Those sub-markets are probably where we would likely see more renovation happening and it would make sense for owners to do that, because the tenants are rewarding it in those sub-markets as well," he explained.
Meanwhile, Mangru said that pretty much any Class B building that could use an upgrade fits the profile for upside.
However, one thing that is causing issues for not upgrading Class B office properties is the high cost of financing in a world where interest rates remain elevated. Plus, most of these landlords aren't institutional ones with big footprints and have limited access to capital as is, according to Mangru.
"The financing needs to ease up to really allow that, he said of another potential Class B upgrade wave. "Once that happens, we'll actually be in full recovery mode in Manhattan."
Manhattan Office to Continue Prospering in 2026
But overall, Manhattan's recovery has been resilient since the pandemic. Year-to-date leasing through October in the market surged by 38 percent from the same period last year to 26.03 million square feet, according to a November report from CBRE. Additionally, Transwestern separately said that sublease space fell below pre-pandemic levels to 11.8 million square feet, as of November 1.
Mangru predicts that demand for office space in Manhattan will remain high, with supply continuing to tighten over the next 12 to 18 months and prices per square foot continuing to increase. Additionally, Avison Young forecasts that leasing activity in the market will pick up.