Manhattan Office Leases Are Getting Smaller and Shorter

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At first glance, Manhattan’s office market appears to be thriving—with over 20 million square feet leased in the first half of 2025. But beneath the surface, the structure of leasing activity is rapidly shifting. Companies, particularly in tech and AI, are signing shorter leases for smaller spaces, driven by uncertainty about the future of work, increased outsourcing, and cost efficiency.

Key Takeaways

• Leasing Is Up—but Spaces Are Smaller: While Manhattan saw its strongest leasing since 2014, 67% of deals were for spaces between 5,000–14,999 square feet, showing a shift toward smaller footprints.
• AI and Outsourcing Reduce Space Needs: Companies are scaling back on-office headcount. Tasks handled by humans are increasingly automated or outsourced, driving down the need for large spaces.
• Shorter Lease Terms Are the New Norm: AI firms are averaging lease terms of just 3.5 years. For tenants under 10,000 square feet, five years or less is now preferred.
• Commoditized Buildings Must Bend: In Class B and C buildings, landlords are increasingly open to shorter, flexible leases to remain competitive in a tenant-friendly market.
• Startups and Tech Drive Flex Demand: NYC is home to 8,750 funded tech startups—double the number from 10 years ago—many of which want lease flexibility due to uncertain scaling paths.
• Class A Tenants Also Shrinking: Even in top-tier buildings, tenants are downsizing due to limited supply of large, premium spaces and a “flight to efficiency” in leasing strategy.

Frequently Asked Questions

Q: Why are companies leasing less space in 2025?

A: A mix of economic uncertainty, AI-driven automation, and increased outsourcing is shrinking demand for traditional office footprints.

Q: How long are office leases now?

A: For tech firms, average lease terms are as low as 3.5 years. The average NYC tenant (around 8,000 square feet) typically prefers 3–5 year terms.

Q: Are Class A properties immune to this trend?

A: No. Even high-end tenants are signing smaller leases due to limited availability and a push toward space efficiency.

Q: How are landlords responding?

A: Many are accepting shorter leases and lower rents, especially in Class B and C buildings, to stay competitive.

Q: Is this trend unique to New York?

A: No. Nationwide, average office lease sizes have declined each year since 2019—from 32,870 square feet in 2019 to 27,932 square feet in 2025.

Q: What does the future hold?

A: Experts expect a "new normal" to emerge within the next 24–36 months, where smaller, flexible lease structures become the industry standard.

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