Feb 27, 2025
The tides are turning for New York’s commercial real estate sector, and investors are taking note. At the recent ULI New York: Real Estate Outlook 2025 event, experts expressed optimism about the future, citing lower interest rates, economic resilience, and shifting investment trends as key factors in the recovery. While uncertainties remain, particularly regarding federal policy and interest rate adjustments, the consensus is that Manhattan’s real estate market is on an upward trajectory.
According to the 2025 Emerging Trends in Real Estate® report by PwC and ULI, the market is on the verge of a rebound, bolstered by improved financial conditions and investor confidence. The forecast indicates that rising returns, appreciation, and increased transaction volume are expected in the near future. Bill Staffieri, a partner at PwC, echoed this sentiment, pointing out that 65% of surveyed firms anticipate “good” or “excellent” profitability in 2025, a significant jump from 41% the previous year.
However, the pace of interest rate cuts remains uncertain. While the Federal Reserve implemented a 50-basis-point reduction in late 2024, additional rate cuts expected in 2025 may be delayed due to inflation concerns. Lisa Pendergast, CEO of the Commercial Real Estate Finance Council, noted that rates are still high enough to discourage new office development and refinancing for owners holding older loans.
Despite these challenges, New York City’s commercial real estate market is experiencing a remarkable resurgence. The investment-sales market surged in Q4 2024, with total transactions reaching $1.6 billion—a 98% increase from the previous quarter and a 110% jump from Q4 2023. While still below pre-pandemic levels, the trajectory suggests a renewed confidence in the city’s office and mixed-use properties.
Several New York metro areas rank among the top U.S. markets for overall real estate prospects, including Manhattan (11th), Brooklyn (14th), Jersey City (19th), and Long Island (20th). In comparison, Manhattan ranked 42nd in 2022, underscoring the significant rebound in just a few years.
One of the most notable developments is the slow but steady recovery of New York’s office sector. While office space absorption remained flat in recent years, firms have begun to retain more space upon lease renewals. In 2021, tenants were reducing their office footprint by 30% on average—by 2024, that number had dropped to just 10%.
Additionally, plans to convert 17 million square feet of older office space into residential units are expected to ease strain on older buildings and bolster the city’s housing supply. Strong job growth is also fueling demand for high-end office space, with new office towers in Manhattan seeing a spike in rental rates.
Investors should remain mindful of environmental regulations, particularly Local Law 97, which mandates strict energy efficiency standards for commercial buildings. Fines for non-compliance, which began in 2024, will become even more stringent in 2030. As climate regulations remain a priority for New York policymakers, real estate owners must prioritize energy-efficient upgrades to stay competitive.
The message from industry leaders is clear: New York’s commercial real estate sector is in a recovery phase, with increased investment, leasing activity, and a more stable office market. However, the success of this rebound depends on factors such as interest rate adjustments, economic policy shifts, and continued demand for high-quality office and mixed-use spaces.
For investors and developers, the evolving landscape presents both challenges and opportunities. Those who adapt to changing market conditions—leveraging strategic conversions, sustainability initiatives, and premium leasing options—are best positioned for long-term success.
Disclaimer: This content is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice.
