Landlords are regaining leverage in New York’s premium office market, according to Vornado Chief Executive Steven Roth, as surging demand for top-tier Manhattan space collides with a shrinking supply.
“The rotation from a tenant's market to a landlord's market is now happening” in the Class A midtown office market Vornado competes in, Roth said on the company’s third-quarter earnings call Thursday. He added that the vacancy rate in midtown Manhattan’s top-tier office stock has declined to an average of 6.2%. That’s less than half what CoStar data shows as the 13.4% vacancy rate in New York.
“Tenant demand is robust,” Roth said. “Companies are expanding. Demand is broad-based across all industries, and available space in the better buildings continues to evaporate quickly. … We are at the foothills of strong, maybe even surging rent growth. … We are just in the third inning. The best is yet to come.”
Vornado reported that the third-quarter Manhattan office occupancy rate rose to 88.4% from 86.7% in the second quarter, led by leasing at its renovated Penn 2 tower above Penn Station from tenants such as Verizon and communications firm FGS Global. Vornado Chief Financial Officer Michael Franco expects that rate to rise to the low 90s in the next year. For Penn 2, Vornado expects its occupancy rate to top the company’s original year-end target of 80%.
Near-record office leasing
Vornado, which leased 2.8 million square feet of Manhattan office space in the first nine months of 2025 with a starting rent of over $99.26, projects to close the year with its highest Manhattan office leasing volume in over a decade and its second-highest year on record, he said, adding that straight-line mark-to-market rents have risen 12% in the first three quarters.
Other landlords including SL Green Realty, Manhattan’s largest office landlord, also have pointed to the so-called flight-to-quality demand against dwindling supply in the city.
Manhattan’s leasing volume of 33.7 million square feet through October has already surpassed 2024’s yearly total of 33.3 million square feet, leading this year’s total likely to top 40 million square feet for the first time since 2019, according to a Colliers study.
Meanwhile, the available supply in the market has tightened to about 75.8 million square feet, its lowest level since December 2020, while the sublet supply has fallen below the pre-pandemic level of 12 million square feet in March 2020, Colliers said. The average asking rent in Manhattan in October rose by 0.4% to $75.18, the highest in two years, with gains in both midtown and downtown.
New York projects
To capitalize on the top-tier office demand, Vornado, which in September bought the 623 Fifth Ave. office condominium above the flagship Saks Fifth Avenue department store for $218 million, is redeveloping it into what Roth described as “the most interesting, high-end boutique office in the city.” Vornado will “double [its] money on that asset in a very short period of time,” Roth said.
Part of making its Penn District portfolio surrounding Penn Station more attractive involves transforming what Roth described as “the entire old … junky retail” on both sides of Seventh Avenue along 34th Street down to 33rd Street that Vornado “inherited” from prior ownership.
“This is the gateway to our Penn District, and a transformation … will have a big impact,” he said. “We are in the process of canceling all those leases, and we will basically redevelop all of that space … to modern, exciting, sought-after retail" offerings.
Vornado also is set to begin construction next year of a 475-unit residential building at the corner of 34th Street and Eighth Avenue that’s kitty-corner from the Moynihan Train Hall.