Office Market Pain Persists Despite Manhattan’s Glow-Up

Monday, May 19, 2025

• No returns: Despite Manhattan’s rebound, steeply discounted sales in Denver and San Francisco show distress still defines much of the office market.

• Gridlock: Data center developers are clogging the grid with phantom power requests, distorting forecasts and delaying real projects.

• Hushed luxury: As cities grow noisier, soundproof apartments are emerging as a sought-after wellness amenity, appealing to health-conscious and media-savvy residents.

• Multifamily market shifts: Join tomorrow’s webinar to learn how industry leaders are navigating tighter margins and rising renter expectations in the months ahead. Sign up

Editor’s Pick

Office Market Pain Persists Despite Manhattan’s Glow-Up

San Francisco and Denver sales show just how far values have fallen

Even as Manhattan’s office market posts one of the sharpest recoveries in the country, recent sales in San Francisco and Denver illustrate how far many properties have fallen in value. The broader office sector remains under stress, with few signs of a rebound.

In New York, the office vacancy rate dropped to 16.5 percent in March 2025, its lowest since the pandemic began and well below the national average of 19.9 percent, according to data from CommercialEdge. Amazon’s 330,000-square-foot lease at 10 Bryant Park, along with several other recent deals, has helped boost confidence in Midtown. Manhattan also led the nation in office sales volume during the first quarter of the year with $2 billion in transactions.

The picture is very different in Denver and San Francisco.

In Denver, two downtown towers at 621 and 633 17th Street recently sold for just $3.2 million. The same buildings were estimated to be worth around $200 million in 2019. Developer Asher Luzzatto, who bought the buildings, plans to convert them into more than 700 apartments. “I’ve seen empty buildings. It’s disquieting,” he said. Downtown Denver currently faces vacancy rates of about 25 percent, and many buildings are struggling to retain tenants. Conversion to residential is seen as one of the few viable paths forward, although the cost and complexity make it far from a universal solution.

San Francisco tells a similar story. ASB Real Estate Investments just sold 799 Market Street, a mixed-use building with office and retail space, to Sansome Street Advisors for $44 million. It had paid $141 million for the property in 2016. The sale follows three other recent losses for ASB in San Francisco, including two SoMa office buildings and an apartment complex. At 799 Market, more than half of the office space is currently vacant. This marks a steep decline from its 100 percent occupancy less than a decade ago.

San Francisco now has the highest office vacancy rate in the nation at 28.6 percent. The tech-heavy city has been hit hard by layoffs, shifting workplace expectations, and the enduring appeal of remote work. Investors like Sansome Street Advisors are stepping in to reposition these distressed assets, but most of the market remains in flux.

Across the country, distress is growing. Office sales classified as distressed jumped to 10.8 percent of total transactions in 2024. That represents 25 million square feet of space, up sharply from the three-year average. Larger buildings in urban cores are especially vulnerable as leases expire and tenants downsize or exit entirely.

Meanwhile, office utilization across the United States has remained flat at around 54 percent since early 2023, according to Kastle Systems Workplace Occupancy Barometer. Construction starts have fallen off a cliff. Just 2.6 million square feet of new office projects began in the first quarter of 2025, compared to 50 million square feet annually before the pandemic.

That decline in new supply may eventually help rebalance the market. But for now, Manhattan’s recovery looks like an outlier. The deeply discounted sales in Denver and San Francisco serve as reminders that for much of the office sector, the bottom has yet to be found.

Utilities Call Bluff On Speculative Data Center Load Demands

As data centers rush to secure grid access, utilities are confronting a surge of speculative interconnection requests, many of which will never become a reality. Experts estimate five to ten times more requests than actual data center builds, distorting grid forecasts and consuming utility resources. These “phantom” projects strain already limited interconnection queues, leading to delays and costly misallocations in resource planning.

A lack of transparency is worsening the issue. Data center developers often obscure land purchases behind LLCs, while tech giants like Microsoft and Meta routinely abandon gigawatts of capacity due to permitting hurdles or shifting strategies. Even well-established players hedge their bets by over-requesting access, unsure of power availability. Some utilities now require deposits or proof of project maturity, while others seek help from regulators.

Many fear that current measures will fall short. “When it’s cheaper to buy a queue position than not to use it, developers will game the system,” said former utility commissioner Karl Rábago. Until queue access reflects the real likelihood of data center construction, the grid will remain clogged with ghost projects, and the infrastructure needed for real ones may lag behind.

Soundproofing is Becoming a Popular Multifamily Amenity

As cities densify they become noisier. The increasing level of noise pollution has created a demand for an unconventional amenity in multifamily buildings: quiet. Luxury developments are already starting to attract attention (and buyers) for their "soundproof" units.

Apartment dwellers are no longer willing to listen to their neighbors, noise problems are 43% of neighbor complaints in noise-sensitive cultures like Japan. Some countries have even started to create inter-floor noise standards for buildings. As recording videos for social media and podcasting becomes more popular, the desire for noise-dampening apartments will continue to grow.

There is growing evidence that noise, particularly sudden, loud sounds called "impact sounds" are even harmful to our health. By increasing anxiety levels and negatively impacting the ability for deep sleep, noises can be harmful. Apartment communities with a focus on wellness might be able to make a quiet, restful apartment part of their selling points to health conscious buyers.

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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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