The Reverse Iceberg Effect – March 31, 2025

Call it the reverse iceberg effect: whereas an iceberg is more massive than it appears on the surface of the ocean, the opposite tends to be true when it comes to tenant options for office space. The amount of available square footage is significantly larger than the amount of desirable space. 

That’s among the key takeaways of “The hidden tightness in office markets: A closer look at desirability,” a new article by Avison Young’s Sean Boyd and Danny Mangru. A quote from John Dolan, the firm’s Boston managing director, illustrates the point: 

“Notable renewal activity in top-tier premier office properties throughout late 2024 like Bain, PwC, and Ropes and Gray indicates that tenants continue to opt for best-in-class product over relocating to properties that offer discounted rates. The value for the users is in providing a premium employee experience.” 

Consider that for occupiers, a post-pandemic challenge may be to induce team members to come into the office. A few major employers have implemented return-to-office mandates—but they have high-quality space backing them up. 

Boyd and Mangru illustrate the situation in another gateway coastal market, San Francisco. There, the undesirable spaces are characterized by “a lack of amenities and outdated buildouts that resulted from a pre-2020 surge in leasing demand. This surge allowed landlords to charge high rental rates without having to modernize their office spaces.”  
 
Five years later, it’s a different world—but in many of the city’s office properties, not much has changed. “We see that 7.6 million square feet of the 37.4 million square feet of available office space is deemed undesirable due to these factors,” write Boyd and Mangru. “With these assets removed, along with financially troubled buildings and buildings proposed for conversions, 27.8 million square feet of desirable space is left, bringing the more accurate availability rate from 31.7% to 23.6%.” 

That being said, it’s not inevitable that the undesirable space will continue to go begging or end up being repurposed for residential use. Given a stabilizing availability rate and a new era of tech companies emerging, primarily from the industry’s AI subsector, “there’s significant opportunity for the [San Francisco] office market to rebound. Well-equipped assets are expected to recover faster than the rest, especially if owners and landlords can capitalize on an industry that has a high ceiling for growth.”   

In the largest of all U.S. office markets, New York City, closer analysis similarly reduces the availability rate. Currently there’s 96.9 million square feet of available office space, but more than 20 million square feet of that tally is considered undesirable. Another four million square feet can be found at potentially troubled properties, and more than one million square feet has been proposed for residential conversion. That brings the total down to 71 million square feet of desirable space currently on the market. 

“Diving deeper into the market reveals this desirable space is spread across 966 office buildings,” Boyd and Mangru write. “25% of buildings with the most available square feet account for 82% of total available square footage, meaning the magnified availability of truly leasable space is not nearly as abundant or widespread as it seems.” 

Connect CRE’s reporting on Manhattan office leasing over the past few years may suggest that the current market favors a handful of newly constructed trophy towers such as Tishman Speyer’s The Spiral or SL Green Realty Corp.’s One Vanderbilt. However, office landlords who have revamped older properties are also reaping the benefits by attracting their share of tenants seeking top-tier space. “Landlords and tenants remain increasingly strategic in the search and development of well-located, high-quality buildings that have the potential to thrive,” Boyd and Mangru conclude.