Office Demand Is Dropping Even For NYC’s Class A Assets

Research shows growing signs of distress in high-end office buildings.

Interesting and somewhat conflicting data is being shared about the volatile New York City office market, especially regarding Class A or trophy  assets.

The VTS Office Demand Index (VODI) for February showed that these higher-quality buildings had accounted for a growing share of tours while Moody’s Analytics said the amount of leased Class A office space in central business districts fell in Q4 for the first time since 2021.

“Any property owner that says, ‘Oh we’re fine’ is a little bit fooling themselves,” Thomas LaSalvia, director of economic research at Moody’s Analytics, told the Wall Street Journal in a recent article about the growing signs of distress in high-end office buildings.

Meanwhile, Savills said that nearly 19% of all high-end office space in Manhattan was available for lease in Q4 – a rate that was only slightly higher than the availability rate at Class B and Class C buildings. In early 2019, the Class A availability rate was 11.5%, the brokerage firm said.

To be sure, other statistics highlight the pull these higher-end buildings continue to have on office users.

A soon-to-be-released report from Avison Young shows that trophy properties, while only representing the top 10% of the Manhattan office market, accounted for 29.6% of leasing activity in Q1 2023. Top-tier product continues to receive an outsized share of demand.

The continued demand for trophy assets has brought the availability rate for Trophy properties in Manhattan to 17.7% — 200 basis points lower than overall Manhattan. Although, much like overall Manhattan, the trophy availability rate has ballooned 390 basis points since the onset of the pandemic.

But with demand concentrating in the high-end environment in recent quarters, the economic shocks of the past few weeks exacerbated an already softened market and more acutely impacted the Class A leasing environment, Sarah Orcutt, Director of Research at Lee NYC, tells

In Q1 2023 to date, Orcutt said Class A leasing activity measured just shy of 2.5 million square feet, a 55% reduction from the prior quarter. Class B&C leasing, although still lagging behind the high-end market, captured 2.25 million square feet QTD, a marginal 2.1% decline from the same period.

In Q4 2022, Class A leasing totaled 5.5 million square feet, lagging the 3-year (2017-2019) pre-pandemic quarterly average of 7.2 million square feet by 23.2%. Class B&C leasing totaled 2.3 million square feet, 37.9% below the pre-pandemic quarterly average of 3.7 million square feet.

In 2022, 6.9 million square feet of new Class A space was delivered, adding to an already abundant supply.

“Currently, there are over 102 million square feet of available space on the market in Manhattan, two-thirds of which is Class A space,” Orcutt said. “Since Q4 2019, an additional 21.9 million square feet of high-end space is available on the market, with Class A availability standing at 18.9% currently.”

VTS said that in February, new office demand remained “relatively stable in recent months,” with Trophy and Class A office spaces accounting “for an increasing share of tours, suggesting a new demarcation between the spaces that continue to draw demand and those that flounder.”

VTS added that New York City’s share of office tours in Trophy and Class A office space has been gradually increasing over the past year.

In fact, February featured the highest percentage rate of Trophy and A office space tours in the market (81.6 percent) – up from 76 percent a year ago and the highest percentage over time since October.

Ryan Masiello, Chief Strategy Officer of VTS, said in prepared remarks, “We’re seeing that post-pandemic, much of the demand in New York City is centered around the most prime assets.

“Not all office spaces are created equal, and some are far more prestigious and in better locations than others. Our data illustrate the ‘flight-to-quality’ that’s developed as demand for the most prestigious Trophy and Class A spaces tend to be more resilient.”

VTS CEO Nick Romito added in prepared remarks, “The office leasing market came out of hibernation as it always does in February, and all eyes are on March to see if we see the burst of spring activity that we’re used to.”