Bidding Wars Spread to Manhattan Office Leasing as AI Firms Scramble for Space

Bidding Wars Spread to Manhattan Office Leasing as AI Firms Scramble for Space

Manhattan apartment hunters have long known the pain of competing offers. Now corporate tenants are getting a taste of it: multiple suitors vying for the same office suites, counters met with counter-counters, and final rents landing well above asking.

The dynamic reflects a tightening market. Several quarters of strong leasing demand with little new construction have eroded the supply of high-quality, built-out office space across the borough, and the boom in artificial intelligence companies has accelerated the squeeze. These firms, often flush with investor capital, are expanding so quickly that many cannot afford to wait for landlords to finish build-outs, pushing them toward turnkey space.

A recent example: the Rosen family’s 151 West 26th Street building in Chelsea drew a wave of bids for a 17,610-square-foot top-floor availability, according to Max Koeppel, director of leasing at Koeppel Rosen, which manages the family’s properties. The field was cut to three finalists, two of them AI companies. After a round of counter-proposals, offers arrived at $60 to $70 per square foot — on a space initially priced at $56.

Koeppel described the growth trajectory typical of these tenants: a company that takes 15,000 square feet today may need 30,000 within a year and double that again the year after.

Brokerage-side observers say the frenzy is concentrated in specific corridors. “AI companies are overwhelmingly the tenants who are getting into these bidding wars in Midtown South,” said Benjamin Bass, vice chairman in the brokerage division of Jones Lang LaSalle (NYSE: JLL), calling the atmosphere the closest to a “circus” he has seen. The stock closed at $362.36, essentially flat on the day, with a market capitalization of roughly $16.5 billion.

Landlords say the pace evokes earlier eras. Craig Deitelzweig, president and CEO of Marx Realty, said he hasn’t seen leasing velocity like this in two or three decades, when finance firms and dot-com companies dominated prime corridors. What’s different now, he noted, is the breadth of demand — spanning major submarkets and industries ranging from buzzy startups to century-old law firms.

The broader market has not fully recovered from its pandemic-era losses, but the trendline is clear. Manhattan’s total available office inventory fell to 65.4 million square feet in August, per Colliers, the lowest level since September 2020. Sublet space has shrunk to levels last seen in 2019, while residential conversions continue to pull office product off the market.

What to watch

• Upcoming Manhattan leasing reports for fresh data on availability and sublet supply trends.
• Whether office-to-residential conversion activity continues to reduce inventory.
• The durability of AI-sector expansion, which has been a key driver of recent demand.
• Landlord earnings commentary on leasing velocity and pricing power in coming quarters.

Source: original release