Marx Realty’s 35-story building at 10 Grand Central is nearly full. Craig Deitelzweig, Marx’s CEO, did a multi-million-dollar renovation, adding hotel-like amenities to the drab office that used to go by 708 Third Avenue. Tenant demand is now so furious Deitelzweig raised rents four times in the past year.
“It’s one of the strongest office markets that we’ve seen in a decade,” he said.
Not all New York City office dealmakers will make a claim like that, but most will acknowledge the comeback in a sector that descended into the edges of hell during Covid only to remain in purgatory for years.
Earlier this year, New York City recorded the lowest office vacancy rate of any major city, according to Moody’s. Foot traffic has exceeded pre-pandemic numbers, Placer.ai data shows. And new leasing in Midtown rose to 5.3 million square feet in the second quarter, its highest mark since 2019, according to a report from Cushman & Wakefield.
News from the leasing market has spurred big-ticket deals. RXR’s recent purchase of 590 Madison Avenue, a 1 million-square-foot tower formerly home to IBM, was the first sale of over $1 billion since 2022.
“590 Madison was finally the culmination of all the trends that we were seeing and the conversations we’ve been having that the market was finally ready to get a billion-dollar-plus single asset sale done,” said Gary Phillips, managing director of Eastdil Secured, who brokered the deal.
Another sign of a comeback: Blackstone is looking at the sector. When Jon Gray and the trillion-dollar Blackstone operation put their money into something, others follow. In June, the firm made one of its first moves into office since Covid, acquiring a large stake in Fisher Brothers’ 1345 Sixth Avenue. It also bid on 590 Madison and on Paramount Group, the New York City and San Francisco office landlord with 13 million square feet of Class A office space that reached a deal to sell to Rithm Capital in September.
Meanwhile, Related Companies might build a new office at 625 Madison Avenue, where it had planned a 1,220-foot, 68-story supertall with residential, hotel and retail. The pivot would be to an “AA-class office tower.”
Padding the environment, the Federal Reserve finally lowered the federal funds rate in September, while suggesting future rate cuts. CBRE already expects an uptick in deals.
But the scope of the office comeback is unclear. Institutional investors are still not making broad bets on office, but are surgically picking spots in sub-markets within a sub-market. At the same time, an untold amount of distress is playing out behind the scenes with lenders.
“I’d say it’s early days of a recovery in office,” said Spencer Garfield, co-head of CRE credit at Fortress Investment Group. “But that recovery is underway, and there’s still pain to be had, because there are still over-levered properties, and there are still poorly run properties and undercapitalized sponsors.”
Return journey
New York City’s office comeback story started with leasing.
With new construction virtually stopped and the trophy towers of One Vanderbilt, Hudson Yards and Manhattan West filled up, companies searching for space looked elsewhere.
They first turned to Park Avenue because of its close proximity to Grand Central, which seemed more convenient than ever for employees returning to the office, especially from the Northern suburbs. With its historic reputation as the premier office address, vacancy rates for Park Avenue declined to less than 10 percent in 2024, far below the city’s average, according to CoStar.
Park Avenue building owners opted to spend tens of millions on amenities and upgrades.
“There happen to be 30 to 40 tenants right now in the market looking for big block space in and around Grand Central and Midtown East.” G
Aby Rosen’s RFR Holdings put about $30 million into the Seagram Building, considered the Rolls-Royce of buildings when it was built in the late ’50s. It’s now fully occupied, averaging leases in the mid-$200s per square foot. Some tenants at Seagram are making forward commitments for 2027 and 2028, son Gaby Rosen noted, because of concerns about finding space in the area.
“Even though the overall market availability rate is still relatively very high, there is a lack of supply of big block space,” Gaby Rosen of RFR said. “And there happen to be 30 to 40 tenants right now in the market looking for big block space in and around Grand Central and Midtown East.”
Such tenants scour Midtown for buildings with their desired amenities, including modern lobbies, high ceilings and spacious conference rooms. Options have been limited. Amazon, which needed to find a place for its 350,000 corporate employees returning to the office, inked a 330,000-square-foot lease at Property & Building Corp’s 10 Bryant Park, a 1980s offIce tower with extensive upgrades. It also enlisted WeWork to lease even more space on its behalf.
Yet institutional investors remained on the sidelines. No one wanted to be the first mover, and other business lines, such as private credit, offered returns of over 15 percent, too lucrative for investment giants to pass up.
So while the leasing upswing brought hope, the lack of sales still led to stagnation. Without comps, investors could not ascertain valuations. The smart money worried about catching a falling knife. What if values dropped further and they were stuck holding an asset with a big mortgage and no buyers?
New life
But deals started to trickle in around 2024. Kevin Chisholm’s 60 Guilders and Sentry Realty bought 292 Madison Avenue, a 26-story Midtown office building, from Vanbarton for $90 million, or $450 per square foot, in late 2024. A few months later, Chisholm and Sentry partnered again to buy 1370 Broadway for $75.5 million.
Both purchases had hefty discounts, compared to previous sale prices. Neither building would be considered a trophy asset, but at least, the bottom of the market started to emerge.
In the summer of 2025, investors felt confident about the fundamentals of New York City. Employees were returning to the office at a faster rate than the rest of the country.
That’s when Blackstone reappeared, picking up a 46 percent stake in 1345 Sixth Avenue, a 50-story office tower, as part of a deal that included an $850 million CMBS refinancing.
After years of distancing itself from the asset class and assuring investors it did not have significant exposure to office, Blackstone’s tone changed. It’s okay to own at least some office again, it seemed to be confiding. There’s no shame in being an office landlord.
Deals kept coming rolling in. In August, RXR purchased 590 Madison Avenue. (Some have described the 43-story, 1 million-square-foot property as a B building in an A+ location.)
BXP even indicated to investors it might build its 46-story, 1 million-square-foot office tower at 343 Madison Avenue on spec. (In late July, an anchor tenant emerged: BXP said it signed a letter of intent for an unnamed investment firm to lease 30 percent of the building.)
In September, SL Green went into contract to buy the former home of Brooks Brothers on Madison Avenue near Grand Central for $160 million, with the possibility of building a 800,000-square-foot office tower on the site.
That same month, Rithm Capital reached a deal to buy Paramount Group, which controls 9 million square feet of Class A New York office, for $1.6 billion, or $6.60 a share.
Rithm’s CEO Michael Nierenberg noted his firm’s own struggles to find New York City office space as a sign of the sector’s recovery.
“We’ve been waiting for this for a long time,” Nierenberg said.
New season
Every time a crash occurs, commentators say: This time, it’s different. But the Covid-induced office crash really was different from the 2008 financial crisis, for one.
This time, work-from-home policies threatened the existence of office real estate, driving down values because of real changes in behavior. When the Fed started hiking rates in 2022, landlords had to consider cash-in refinancings for the first time.
Banks backed out of the market, dealing with their own troubled loans, but debt funds and so-called alternative lenders filled the gap, offering new financing for existing landlords trying to fend off foreclosures.
“Unlike the 2008 Great Financial Crisis, there’s still money available today,” said Lonnie Hendry, chief product officer at Trepp. “It’s just the terms that are very unfavorable.”
These lenders allowed owners to hang on to properties, Hendry said. But the cost of their capital is still raising questions about whether the financing just postponed inevitable losses.
“You can argue that it increases the risk across the system, that we just haven’t seen it yet, or you can argue that that’s been the saving grace,” said Hendry. “I think it’s too soon to tell.”
More lenders probably will take back properties, and more borrowers will likely suffer losses. At the same time, landlords are finally landing anchor tenants for their next towers, and new construction will start again.
“There’s a world of stress and distress, and then there’s a world of recovery, and they’re both unfolding at the same time,” Fortress’ Garfield said.
