Investors regain confidence in New York's commercial real estate as office demand surges, fueling major deals
Investors are turning their attention back to New York’s commercial real estate market as companies push employees to return to the office, fueling hopes for a long-awaited recovery.
The shift is reviving demand for premium office spaces, attracting institutional investors such as Blackstone (BXP) and private buyers eager to capitalize on emerging opportunities.
After years of uncertainty, real estate investors and industry leaders are seeing signs of renewed demand. High-profile firms, such as Amazon, are actively looking for more space, while BXP is negotiating leases for a new building. Blackstone, which had significantly reduced its office holdings in recent years, is now showing fresh optimism about the sector.
"In New York, you have financial services firms who are growing rapidly, you don't have any new building," Blackstone President Jonathan Gray said at a recent conference. "In San Francisco, the values fell very hard, in some cases 75%, and AI and technology innovation really (are) housed in San Francisco."
Although Blackstone’s office exposure is now less than 2% of its real estate holdings, compared to over 60% in 2007, the firm is reportedly considering a major stake in the office building at 1345 Avenue of the Americas in Manhattan. BXP has also secured $8 billion in total capital commitments for its latest real estate debt fund. The company has not publicly commented on its investment plans.
CRE rebound
Investor appetite for prime office buildings is evident in the commercial mortgage-backed securities (CMBS) market. Manhattan’s trophy buildings, including the Seagram Building and The MetLife Building, have been at the center of major CMBS deals this year. This follows momentum from late 2024, when a $3.4 billion CMBS sale tied to Rockefeller Center signaled renewed investor confidence.
In February, bonds backed by US office properties made up 35% of single-asset CMBS sales – the highest percentage since 2021, according to Deutsche Bank.
The increase in transactions is also compressing risk premiums. Spreads on some of the riskier portions of CMBS deals have tightened considerably, dropping from 325 basis points in last year’s Rockefeller transaction to below 200 basis points for a recent Seagram Building deal, Bloomberg data showed.
However, challenges persist for older Class B and C buildings, particularly those in less desirable locations or with inefficient layouts.
“Some mid-block or buildings which have no view and are impossible to rent are still under distress,” Ran Eliasaf, founder and managing partner of real estate private equity firm Northwind Group, told Reuters.
Office demand
The return-to-office movement is prompting companies to reevaluate their space needs. With major firms like JPMorgan Chase (JPM) and Amazon enforcing more in-office workdays, some companies may soon find themselves short on space after reducing their office footprints in recent years.
“The world is moving back to work and back to in-person work, no question about it,” said Owen D. Thomas, chairman and CEO of real estate investment trust BXP. He added that declining interest rates are also helping improve commercial real estate’s investment appeal.
BXP is currently negotiating with four to five anchor tenants to develop a 46-story tower in Midtown Manhattan, located near JPMorgan Chase’s new global headquarters, which will house 14,000 employees when completed later this year.
Office utilization in Manhattan has seen a sharp increase compared to other major US cities. According to commercial real estate advisory firm Avison Young, office usage in Manhattan reached 79.9% in January 2025 - well above the 66.9% average for major and secondary US cities.
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The city’s tenant mix across industries like finance, insurance, and technology is also helping stabilize demand.
“Other cities are more reliant on one or two industries,” said Doug Middleton, vice chairman at CBRE’s Investment Properties group.
Growing investor confidence
With economic growth and declining interest rates improving market conditions, institutional and high-net-worth investors are returning to office investments. Goldman Sachs is increasing its commercial real estate financing as interest among private investors rises.
“Our CRE loan portfolio in the private bank is growing, which tells you that there’s a lot of demand and confidence in opportunities within the sector,” said Nishi Somaiya, Goldman Sachs’ global head of private banking, lending, and deposits.
Capitalization rates, a key indicator of property profitability, suggest improving returns. After peaking at 6.99% in early 2024, cap rates fell to 5.77% by the end of the year, according to Trepp. Commercial property sales volumes in the US also rebounded by 9% in 2024, following a sharp 50% decline in 2023, CBRE data showed.
The resurgence of New York’s office market is part of a broader trend. In Europe, strong demand for high-end office spaces is driving rental prices to record highs in central London.
“People got very excited post-COVID that this was the end of the office - it was never the end of the office,” said Hugh White, senior director at BNP Paribas Real Estate.
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