October 2026 Newsletter

Two Observations from the Midtown Office Market | 

This month, I wanted to share two observations from what we are seeing on the ground in the Midtown office market.

The first is a subtle change at the negotiating table.

Higher rents and shrinking supply are not new stories, but landlords are becoming more disciplined about how much they will spend relative to lease term, particularly when it comes to TI, free rent and other concessions.

Two years ago, a major landlord told me they were no longer willing to do a full buildout without a long-term commitment. Last year, we negotiated another deal where a major landlord would not build the space for anything less than a 12-year term.

Both stood out at the time. Today, we are seeing versions of this much more frequently.

This does not necessarily mean TI packages are disappearing or even getting smaller across the market. Landlords are still willing to spend money. Increasingly, however, they want more term in exchange for that investment.

The explanation is fairly straightforward. With higher rents and less quality space available, landlords simply do not have to stretch as far to make deals as they did a few years ago.

For tenants, the impact of a stronger market may therefore extend beyond higher rents. If you want a landlord to make a significant investment in your space, you may increasingly have to make a longer commitment in return.

The Lingering Underbelly

The second observation sits somewhat in contrast to the first.

For all the improvement we are seeing in leasing, many owners are still dealing with the lingering effects of higher interest rates. The simplest way to understand the magnitude is through some basic math.

Assume five years ago a building had rents of $50/SF and expenses of $25/SF, leaving $25/SF of income.

Today, assume rents have increased to $70/SF while expenses have risen to $30/SF. The building now produces $40/SF of income.

That is a 60% increase in income — objectively a substantial improvement in the property's fundamentals.

But assume, for illustrative purposes, that the market previously valued that income at a 5% capitalization rate and today values it at 8%.

The building's income would also have to increase 60% just to maintain the same value.

Of course, this is simplified math. Cap rates are not the same as interest rates, and every building, financing structure and capital stack is different. But the example illustrates the magnitude of what happened when the cost of capital reset.

A building can have substantially higher rents, stronger leasing and 60% more income than it did several years ago — and its owner can still be treading water on value.

That is one of the lingering contradictions in today's office market.

The leasing recovery is real. The damage caused by the repricing of money is real too. Both can be true at the same time.

Until next month,
Ben

Ben Blumenthal
Principal Broker | Noah & Co.

For the rest of our October 2026 Newsletter.