Artificial intelligence and technology companies are largely responsible for the demand for office space in Manhattan in Q2 2026. This development is helping to reduce the post-pandemic overhang of sublease space in the city, according to preliminary data from JLL.
Manhattan's sublease inventory has fallen below 11 million square feet. This represents a significant decrease from its peak of approximately 23 million square feet at the end of 2022. JLL attributes this decline to increased leasing activity from AI companies, although law firms have also leased a considerable amount of space so far in 2026.
Rising Leasing Activity in the Technology Sector
So far this year, AI firms have signed 21 leases totalling 719,200 square feet in Manhattan. This figure is on track to surpass last year's total of 845,000 square feet. Approximately 70 percent of the signed leases were in the Midtown South market, which is developing into a 'tech and innovation hub' for the city.
- —AI sales platform Clay leased 163,095 square feet at 11 Madison Avenue in March.
- —AI-driven advertising firm Agentio took 20,000 square feet at 295 Fifth Avenue in March.
Jamie Katcher, Executive Managing Director at JLL, commented on the market development: "The Manhattan office market gained momentum in the second quarter as demand continued to focus on high-quality space." He added that the rapid absorption of the sublease overhang is the most remarkable development. "The growth of AI firms, as well as financial services companies and law firms, is driving long-term leasing decisions. Simultaneously, landlords are increasingly withdrawing available sublease space to secure direct leases at significantly higher rents."
Market Indicators Show Clear Recovery
Overall office availability across Manhattan fell by 50 basis points quarter-on-quarter to 12.7 percent, according to JLL data. In the second quarter, approximately 2 million square feet less space was available than in the first three months of the year. In June alone, total leasing volume in the borough reached 1.1 million square feet, while 17 million square feet have been leased year-to-date. The average asking rent for office space in Manhattan was $84.23 per square foot in the second quarter.
