The New York City office market has changed dramatically in the past two years, driven by more than just return-to-office mandates or the rise of hybrid work. A decisive trend is now determining which buildings succeed and which struggle: tenants with lease flexibility are actively moving to higher-quality buildings and better neighborhoods, often for rents that are similar or only slightly higher.
Michael Rait, Founder and President of BR Design Associates, sees this flight to quality as a recalibration of how companies approach their office needs. “There’s been a flight to quality,” Rait says. “Clients that can afford it are looking to upgrade. If their lease is up, they’re looking to elevate. They’re saying, for the money I was paying in this space, I can get a much nicer space, I can be in a much nicer building in a better area.”
After years of uncertainty about the future of office space, Rait notes, companies with the resources to move are doing so strategically, prioritizing newer buildings, better amenities, and more attractive locations. The result is a split market: Class A buildings and top neighborhoods are seeing strong demand, while older, less-amenitized buildings face growing vacancies and declining relevance.
Supply Constraints Amplify the Trend
Limited supply at the top end of the market is reinforcing this shift. Landlords of premium buildings are offering substantial tenant improvement allowances and enhanced amenity packages to attract tenants looking to upgrade. In contrast, owners of outdated or less desirable buildings must choose between making major upgrades or converting their properties to residential use.
“Owners are moving buildings that underperformed as office space into residential use, removing them from the commercial market,” Rait explains. “So landlords are taking advantage of that. The rents are going up a little bit, and there’s more demand.”
The conversion of underperforming office buildings to residential use has removed millions of square feet from the commercial market, according to Rait. This reduction in available office space has tightened supply, giving landlords of quality buildings more leverage to raise rents and negotiate favorable terms. As a result, tenants searching for space are facing fewer options but higher standards among the buildings that remain.
Competition Returns to Pre-Pandemic Levels
This trend is occurring alongside an increase in genuine tenant demand. “There might have been a few years ago, only one or two tenants or nobody looking at that space,” Rait says. “Now there could be three, four, or five tenants looking at the same space. The velocity of deals has increased a lot. It’s like it’s 2019 again, before the pandemic.”
Rait reports that deal velocity in the office market has returned to pre-pandemic levels, indicating that demand for office space remains solid. However, demand now focuses on buildings and neighborhoods that offer clear upgrades over tenants’ previous spaces.
This concentration of interest has created a two-tier market. Class A buildings in prime locations are attracting multiple competing tenants for each available space. Meanwhile, older or less updated buildings are seeing limited interest, even when they offer lower asking rents.
Implications for Building Owners
For investors, this bifurcation presents an opportunity to acquire and renovate older buildings. “If it’s a good tenant with a good landlord with deeper pockets, they could probably convert the building or upgrade the building and attract commercial tenants again,” Rait says. “So it could be a good opportunity.”
Rait’s observations suggest that average-quality office space is losing its market share. Tenants now have more options, and many are choosing to upgrade whenever possible. For building owners, this means a stark choice: invest in substantial improvements or face the prospect of residential conversion or long-term vacancy.
The flight to quality appears to be a structural change in Manhattan’s office market, not just a temporary post-pandemic adjustment. As tenants discover they can secure better buildings without a significant increase in cost, older office stock may remain at a disadvantage unless owners commit to major upgrades. Without significant investment, owners risk falling behind as quality and location increasingly drive demand.
