Manhattan's office market recorded 11.02 million square feet of leasing during the second quarter, marking the strongest demand levels in over two decades, according to a report from Colliers. The quarterly leasing volume was 29.4% above the five-year average and 31.3% above the 10-year average, driven by return-to-office movements and rising demand from tech, AI, legal, media, and financial services sectors. This recovery represents a significant shift from pandemic-era distress, as the market achieved the first time since 2002 that demand exceeded 11 million square feet for three consecutive quarters.
Manhattan Office Leasing Records 11.02 Million Square Feet in Q2
Quarterly demand was up just over 19% year over year, according to Colliers, a commercial real estate services firm. While leasing activity was down slightly from the previous quarter, the second quarter marked the first time since 2002 that demand exceeded 11 million square feet for three consecutive quarters. For the full first half of the year, demand was the strongest in more than two decades, while supply has tightened or remained stable for the longest quarterly period in nearly 20 years. Asking rents saw the largest mid-year annual growth since 2016.
AI Firms Drive 800,000 Square Feet of Leasing Activity
AI leasing volume in the second quarter rose to 800,000 square feet, up from 700,000 square feet in the prior quarter and surpassing all of the leasing by AI firms in Manhattan combined in 2025. Frank Wallach, executive managing director of research and business development at Colliers, stated that return to office movements mixed with rising demand from key industries such as tech/AI, legal, media and financial services across nearly every corner of the Manhattan office market have converged and driven the very healthy demand in Q1 and Q2 2026. Manhattan and San Francisco office markets are both seeing big gains from AI.
Class B Buildings See 14% Increase from Pre-Pandemic Levels
A report from CoStar found that Class B leasing in the first half of this year was up 14% from pre-pandemic levels and up 28% from last year. The Class B share of leasing in the first half of this year was 45%, versus 43% pre-pandemic. Victor Rodriguez, CoStar Group's senior director of analytics, stated in the report that New York's office recovery may be entering a new phase, with first-half 2026 data showing a notable rebound in Class B demand. Availability has narrowed considerably in Manhattan's older buildings, according to Colliers, and the Class B inventory ended the second quarter with the highest average asking rent on record.
Office Conversions and Supply Tightening Shape Market Dynamics
Millions of square feet of planned building conversions to non-office uses and a wave of leasing stemming from office tenants relocating from these buildings have complemented the demand drivers, according to Wallach. There is a definite flight to quality, with newer, more amenity-rich buildings known as Class A buildings seeing strong demand, while older buildings sit half empty. More buildings are being converted to other uses, like residential or hospitality, but it is a long, slow process.
FAQ
What was the Manhattan office leasing volume in the second quarter?
Manhattan recorded 11.02 million square feet of office leasing during the second quarter, which was 29.4% above the five-year quarterly average and 31.3% above the 10-year average, according to Colliers.
How much office space did AI firms lease in Manhattan during Q2?
AI leasing volume in the second quarter rose to 800,000 square feet, up from 700,000 square feet in the prior quarter and surpassing all of the leasing by AI firms in Manhattan combined in 2025.
What is driving the recovery in Manhattan's Class B office buildings?
Class B leasing in the first half of this year was up 14% from pre-pandemic levels and up 28% from last year, with the Class B share of leasing reaching 45% versus 43% pre-pandemic, according to CoStar, indicating that more price-sensitive and mid-market demand is returning to the leasing market.
