Downtown Manhattan's office market demonstrated a strong recovery in 2025 and continued into 2026, with 6.39 million square feet of office space leased in 2025, the highest annual total since 2019 and a significant increase from 2.55 million square feet in 2024. Fourth-quarter 2025 leasing activity alone reached 2.16 million square feet, more than doubling from Q3 2025 and nearly quadrupling year-over-year. This upward trend continued into January 2026, with 320,804 square feet leased, a 69.3% year-over-year increase, and robust activity in Q2 2026, totaling 1.14 million square feet according to the Downtown Alliance, and 1.5 million square feet according to Richard Plehn, surpassing the five-year quarterly average of 1.2 million square feet. Overall Manhattan leasing activity during the first half of 2026 was over 23 million square feet, the highest in two decades.
The recovery in Downtown is partly attributed to tenants being priced out of Midtown and Midtown South, where supply dwindled in 2025. While Midtown saw 20.5 million square feet of new office leases in 2025, a 22.9% year-over-year increase, Downtown's lower average asking rents of $60.43 per square foot compared to Midtown's $82.80 and Midtown South's $84.76 became an attractive alternative. Despite the overall strength, Downtown's market is split, with the World Trade Center and Brookfield Place commanding higher asking rents, such as $110.35 per square foot at the World Trade Center complex in Q4 2025 and $85.32 at Brookfield Place.
Leasing activity in Q2 2026 was boosted by major transactions, including law firm Cleary Gottlieb's nearly 476,000 square-foot lease at 1 Liberty Plaza and AON Insurance's 201,000 square-foot renewal at the same location. The World Trade Center submarket alone accounted for 52.1% of Downtown's Q2 leasing activity, totaling 803,088 square feet. Downtown's Class A asking rent increased for the third consecutive quarter to $63.60 in Q2 2026, the highest since Q2 2021, and positive absorption of 2,160,000 square feet was observed due in part to office-to-residential conversions. The overall vacancy rate remained steady at 22.3% in Q2 2026, unchanged from Q1 and down 0.5% year-over-year.
