The momentum of the office market continued in August. Leasing soared to 3.7 million sq ft, a 20% increase from July and a 40% year-on-year jump—a powerful summer rebound not typical during seasonal slowdowns.
The first half of 2025 saw 20 million square feet of leasing activity, marking the strongest opening six months since 2019. If this pace continues, Manhattan is on track to exceed 40 million square feet of leasing by year-end, a volume unseen since 2019.
Overall availability has dropped to approximately 15%, the lowest since early 2021. Sublease inventory has plummeted down 37% since its 2023 peak, and is now at its lowest level since mid-2020.
The Midtown South Mixed-Use Rezoning plan was approved in August. This plan will lead to the conversion of outdated office space into residential units in a large portion of Manhattan. It is estimated that 2 – 4% of office supply will be eliminated. This will lead to substantial upward pressure to rental rates throughout the entire Manhattan office market.
Armano Real Estate has been very active this summer, and what we find most rewarding is the validation we are receiving from clients we advised last year. By planning early and executing strategically, they have achieved outstanding results through precise implementation and skillful negotiation.
Our message remains consistent: organizations that develop and act on their office strategies early gain the greatest economic advantage.
We invite you to watch the video linked below and contact us for a complimentary lease review or space planning consultation to explore how early planning can benefit your organization.
More details on the plan are below.
Midtown South Rezoning Plan
The Midtown South Mixed-Use Rezoning Plan (MSMX) is a major development in Manhattan aimed at transforming the neighborhood.
The plan addresses Midtown South’s outdated industrial-only zoning, high office vacancy post-pandemic, and low housing stock in a well-connected transit hub with 7,000+ businesses and 135,000 jobs. The rezoning aims to convert it into a vibrant 24/7 mixed-use district.
The plan targets 42 blocks of Midtown South—from West 23rd to West 40th Streets, between Fifth and Eighth Avenues—including parts of the Garment District and Herald/Greeley Squares.
Key Goals & Components
Authorizes up to 9,700 new homes, including 2,800 permanently affordable units under Mandatory Inclusionary Housing (MIH). Introduces new R11/R12 zoning districts with FAR of 15 and 18—enabled by Albany’s lifting of the previous FAR cap.
Previously manufacturing-only zones are now open to mixed-use offerings: housing, retail, offices, light manufacturing, and community facilities. The plan establishes a Special Mixed-Use District to ensure modern buildings fit the area’s character and maintain active retail street fronts.
Allocates $488 million in benefits, including:
- $120M for Garment District industries.
- $340M+ for public realm upgrades—34th Street busway, Broadway Vision pedestrian improvements, parks, transit, schools, hospitals.
Effects on the Office Market
Massive Office-to-Residential Conversions
Manhattan is on track to convert up to 16.5 million sq ft of office space into residential use—roughly 4% of total office inventory.
Garment District Impact
The Midtown South Mixed-Use Plan (MSMX) sets the stage for up to 9 million sq ft of office space in the Garment District to become eligible for conversion. Previously restricted properties are now un-zoned for housing—unlocking huge potential for office stock reduction.
Shadow Scarcity is Emerging
Announced plans are pulling office space out of the leasing pool creating what analysts call “shadow scarcity.” This reduces effective availability and elevates demand for remaining office space.
Flight-to-Quality Strength Intensifies
As older B/C-class stock exits via conversion, demand concentrates in Class A and modernized buildings. This demand shift allows premium assets to retain or even increase rents, while outdated spaces either offer deep concessions or face conversion.
Garment District Price Realignment
Traditionally, Garment District rents lingered well below city averages. As affordable options vanish and the remaining space modernizes, rents are expected to rise toward prevailing Midtown leasing levels.
Why It Matters
Early movers benefit. Locking in leases now could secure better pricing before availability shrinks further.
