The Office Boom Is Back. Can REITs Be Far Behind?

(Illustration by Callum Rowland)

With many employees back at their desks, it’s now investors’ turn to start planning their return to beaten-down real estate investment trusts.

Key Points

• Manhattan is leading a nationwide office boom as growing startups, artificial intelligence firms and employers compete for high-quality leases.
• National office space is shrinking as old buildings are demolished or converted, leaving just 19.7 million square feet under construction.
• Despite the market recovery, office real estate investment trusts remain cheaper than they were before the Covid-19 pandemic.

A few years ago, if you were in the office-space business in Manhattan, it seemed like real estate Armageddon. First came Covid, then the Zoom boom, then “adjusting to the new normal.” And more recently, artificial intelligence has come along threatening the livelihood of workers everywhere. Are the city’s business districts once again walking along the edge of the ominously named urban doom loop?

It sure doesn’t feel like it in Manhattan, where workers toting takeout from popular lunch spots crowd the sidewalks and there’s a mad scramble for good office space. Remember when developers couldn’t build houses fast enough to stop prices from climbing into the stratosphere? The same thing is happening now with high-quality office space.

In offices across the island, some workers are closing deals from stairwells, while others are setting up shop at the office snack bar. Still others are rotating in and out of cramped buildings on hybrid schedules, the only way bosses can ensure everyone has access to a desk, even if it’s never their own.

“The clear leader is New York,” says Victor Rodriguez, a senior director of market analytics for CoStar. But “what you’re seeing is the office sector across the U.S. gradually improving.”

By a number of measures, the top-tier office revival is, for sure, here and now. Office usage measured in 10 cities by a Kastle index hit a new postpandemic high-water mark of roughly 67% this year, with badge swipes at prime office buildings on busy days regularly within 10% of prepandemic norms. Office space nationally is shrinking as old buildings get torn down or converted into housing or luxury athletic clubs, while tenants are chomping up the most space since 2020, according to Cushman & Wakefield. There’s just 19.7 million square feet of office space under construction nationally, close to the lowest on record, per the report.

As for the looming shadow of AI, even our robot overlords apparently need to find a place to put the humans. Anthropic, the proud parent of the Claude chatbot, is taking over more than 450,000 square feet in New York for its East Coast flagship location.

Manhattan, it appears, is leading the new office boom nationwide as growing start-ups, AI mavens, and big bosses alike compete over the same dwindling pool of high-quality leases—just as they discover they don’t have the space or style to lure employees back.

“It’s a landlord’s dream come true,” says Alexander Goldfarb, an expert in office real estate investment trusts, or REITs, at Piper Sandler.

The squeeze is increasingly the shape of things to come for other Covid-cleared office centers, such as San Francisco and Seattle. With many employees back at their desks, it’s now investors’ turn to consider their return-to-office—or, at least, office REITs.

In the wake of the pandemic-induced existential crisis, REITs that focus on high-quality workspaces may finally be a safe place for investors again, thanks to the office renaissance. In other words, the old maxim “buy low, sell high” may very well apply here.

In Manhattan, the nation’s office pacesetter, prime office space leases for roughly $95 a square foot, up 6% from before the pandemic, according to JLL, while the rent on some premier office spaces can top $300 a square foot. Of the 7.7 million square feet of prime office space under construction, over 80% is leased well before the doors ever open. As of the second quarter, office space in Midtown West was sucked dry, with no direct vacancies in top-market buildings. Options are nearly as limited in the trendy Meatpacking District and the gleaming towers of Hudson Yards.

One place that hasn’t returned to a prepandemic normal is REIT valuations. Now that the long-awaited stabilization in quality office space appears to be here, office REITs are perking up. The New York City pure-play SL Green Realty is having its best year since 2024, while West Coast office and movie studio REIT Hudson Pacific Properties is up 13 %—its best performance in the same time period since 2019.

But there’s plenty of gas left in the tank for office REITs as the New York City office squeeze continues and the revival continues to play out in other key cities. Comparing prices to funds from operations—a stand-in for earnings—U.S. office REITs are largely cheaper than before the pandemic—and their share prices still trail prepandemic levels.

To really understand the boom, you have to understand what happened six years ago when white-collar workers, untethered from their desks by the Covid-19 pandemic, flooded out of cities such as New York and San Francisco and into locales like Boise, Idaho, and the Hamptons.

While well-paid workers sought greener pastures, so to speak, academics floated the possibility of a self-reinforcing death spiral in the city centers and office districts they left behind. Should a city’s tax base deteriorate, the scenario said, so would its quality of life.

Outside of cities, newly remote workers were living large—in many cases literally, as home buyers armed with 3% mortgages and stimulus checks sought as much space as they could possibly finance. During the golden age of remote work, urban foot traffic plummeted while Zoom Communications stock went through the roof. Waving at the end of a video call replaced handshakes. With many white-collar workforces dispersed from coast to coast, or even globally, many wondered if they’d ever return to the office.

Yes, as it turns out—beginning in earnest in 2022. Those who had yearned for a safer way to interact face-to-face could finally do so, and those who were perfectly content working from their home office would slowly lose that perk.

That was the year following the rolling Covid-19 vaccination campaign, which lessened the threat of serious illness from the disease, even in the pandemic’s former U.S. epicenter. It was also when the Federal Reserve did an about-face on pandemic-era inflation. As the Fed tightened, job openings dried up, and the pendulum of power began to swing back to employers.

The tug-of-war that followed is still playing out. For many previously remote companies, hybrid work is the new normal, while others call for a full five-day-a-week return to the office—among them, JPMorgan Chase CEO Jamie Dimon, who aired his grievances with hybrid and remote work on audio acquired by Rebecca Ungarino of Barron’s.

In some ways, JPMorgan’s new headquarters—the impossible-to-miss addition to the skyline that was announced in 2018 and completed in 2025—was an omen of what was to come more broadly in New York City. So says Stijn Van Nieuwerburgh, the Columbia Business School professor who co-authored the 2022 National Bureau of Economic Research paper “Work From Home and the Office Real Estate Apocalypse.” In it, he warned of a remote-work-driven fiscal doom loop. What’s happening now “would be, sort of, the reverse of [the doom loop],” he says.

Increasingly, Manhattan’s reignited love affair with the office is a double-edged sword for its participants. Employers “wanted the faucet to be open—but now you’re flooded,” says CoStar’s Rodriguez.

Take the case of Roc360, a Midtown Manhattan residential real estate lending company whose New York–based headcount roughly doubled to about 60 in the years following the pandemic. “If everyone did come back, then we wouldn’t have had space for everyone to sit,” says CEO Maksim Stavinsky, who pulled the trigger on doubling his company’s footprint late last year. Before the upgrade, some employees without desks were stuck working from the snack bar.

Bilt, the rental-payment rewards company, moved to a new, modern headquarters on the corner of a cobblestone street a stone’s throw from the Hudson River. The 58,000-square-foot space, with walls of windows and abundant communal space, is a big upgrade from the Bond Street building it had long outgrown. Executives in search of a private place for conversations would previously be spotted “taking a Zoom call from a concrete staircase because there is nowhere else to take it,” says Alli Trussell**,** a Bilt senior vice president.

Viral Patel, founder of the New York City–based medtech start-up Radish Health, says he would have never imagined office space would get so expensive. “I assumed that the office market wasn’t necessarily over, but wasn’t necessarily so hot that people were banging down the door of landlords,” he says.

In Midtown, where the once-vacant streets again overflow with both tourists and workers, SL Green reports an increase in net rent for trophy buildings just north of 15%. When new space hits the market, it isn’t uncommon to see multiple proposals, says Steven Durels, the office REIT’s director of leasing and real property.

“Somebody’s going to pay more than the other tenants, and somebody’s going to have to go look for an alternative location,” he says. “That’s far more common today than it was a year and a half or two years ago.”

There are other reasons for the current state of affairs. CBRE’s head of U.S. office research, Stefan Weiss, explains that the conversion of old and undesirable offices into housing or other uses are culprits, along with the postpandemic construction shutdown. “You don’t have to be an econometric forecaster to look at the actual pipeline of what’s coming on-line over the next 24 months and say there’s virtually no supply to meet what is healthy levels of demand at the top of the market,” says Weiss.

For some companies, the scramble for good space is such that they are locking in desks long before they need them. Anthropic this summer signed a long-term lease for a 16-story office building in downtown Manhattan with the capacity for 1,700 desks—more than triple Anthropic’s New York–based employees at the beginning of the year, per a company spokesperson, who adds that the building “will give us the space we need to grow in New York for many years to come.”

Artificial intelligence is contributing to leasing activity in places like Seattle and Boston, too, says David Kirshenbaum, assistant portfolio manager of the Baron Real Estate and Baron Real Estate Income funds. “Part of the overhang for office has been this concern about what would happen to job creation [with AI],” he says, adding that “AI is a friend, not a foe, to [high-quality] office space at the moment.”

And don’t forget about the West Coast’s biggest tech hub. “The Bay area, San Francisco, has really been on fire, especially in the last year,” says Luke Robinson, the regional president for North America at WeWork, which supplies flexible space to companies that find themselves running low. And yes, the crunch for high-quality space is so severe that WeWork, which declared Chapter 11 bankruptcy in 2023, is back in the picture.

The question now for investors: If the office market is so strong, is it time to get back on the REIT train? If you are part of the “buy low, sell high” crowd, maybe yes. The REITs’ share prices have trailed prepandemic levels even as their rent growth bounds higher and their new trophy buildings fill up.

SL Green is trading 46% below its price at the end of 2019. BXP is 53% lower, while Hudson Pacific Properties is down 95% from 2019 levels. Based on expected 2026 funds from operations, all three trade at price multiples below their prepandemic levels.

In addition to concerns about the ultimate impact of AI on the white-collar workforce, rising interest rates—which could become a problem if companies have to refinance their buildings at rates significantly higher than those secured before or during the pandemic—have also played a part in the slump.

Still, there’s hope and opportunity. After a modest rally this year, the most important short-term driver for the stocks is leasing momentum, says Dylan Burzinski, head of office and life science research at the commercial real estate research shop Green Street. “If leasing continues to be strong and accelerated, the stocks will do well,” he says.

Longer term, the stocks more broadly stand to benefit from a shortage of high-quality space in the pipeline. That leaves office REITs with existing buildings, buildings under construction, or flexibility to build further well positioned to take advantage of the undersupply.

One REIT with a lot of room to grow is Hudson Pacific Properties, a West Coast owner of high-quality office buildings and film studio space. Hudson Pacific’s dual businesses were hit hard during the pandemic: Its funds from operations slid to $51 million in 2025 from $316 million in 2019, and it eliminated its dividend in 2024. The company had been hit hard by the pandemic’s dispersal from cities and a stalled Hollywood film industry, a one-two punch that hit the stock price more than any other office REIT, according to FactSet data.

Still, Piper Sandler recently upgraded the REIT to Overweight, with a price target that implies a 48% rise from recent levels, “just given the rapid rebound of the Bay area and our view that Seattle will follow suit in ’27,” says the investment bank’s Goldfarb. Analysts polled by FactSet expect that Hudson Pacific’s funds from operations will stabilize this year and begin to grow in 2027.

BXP, the former Boston Properties, is also well positioned thanks to its solid footprint in its namesake city as well as New York, Los Angeles, San Francisco, Seattle, and Washington, D.C., says Baron’s Kirshenbaum. Indeed, the Baron Real Estate fund in the second quarter re-entered the office REIT industry with a purchase of BXP shares.

BXP has a portfolio of high-tier office space across strong and strengthening office markets, and the stock is relatively cheap, Kirshenbaum says. At a recent $68, it was trading at an implied cap rate of 7.3%, a discount compared to private-market values for comparable real estate, Baron funds says. And the company, with a recent occupancy rate of 88.4%, has plenty of room to ramp up leasing as demand for quality space continues, says Kirshenbaum.

As clear as the runway looks for REITs and high-quality office demand, there are a number of ways the market could stumble. A recession would, of course, hurt. So would higher interest rates, which would drive up the cost of capital for everyone, including REITs, and make refinancing old loans more expensive—one reason REITs have suffered during the recent bond rout.

But that all said, investors should be able to cherry-pick promising REITs while the market is still sluggish.

“More than ever, it matters what you own and where it’s located,” says Kirshenbaum. “Once investors start to see that growth is resuming…we think that investors will get more comfortable with the office stocks.”

Write to Shaina Mishkin at shaina.mishkin@dowjones.com

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