New York Is Back. AI Is Complicating It. – Podcast Recap with Gabe Marans of Savills

New York Office Market Posts Strongest Recovery of Any Major U.S. Market

New York office rents have climbed 28.5% from their post-pandemic trough, outpacing every other major U.S. market, according to the Columbia CompStak Rent Index. That swing, from a 12.7% decline at the bottom to a 12.2% gain over Q4 2019 levels today, reflects a recovery driven by labor depth, AI-fueled demand, and a contracting supply pipeline. In a recent episode of The Not Podcast Podcast, CompStak Co-Founder and CEO Michael Mandel sat down with Gabe Marans, Vice Chairman at Savills, to unpack what’s behind the numbers and what tenants should expect next.

Watch the full episode below:

Why New York Is Outperforming Other Markets

New York has always been a city of extremes. Downturns hit fast and hard, but recoveries follow the same pattern. Marans attributes the current rebound to one core factor: the depth of the labor pool.

“The answer always comes back to labor,” Marans said. He cited a recent example of a European tech company evaluating U.S. markets for expansion. Despite New York ranking highest on both real estate and compensation costs, it won out because of talent availability and employee preference. Nashville and Charlotte came in second and third, a surprise that underscores how companies are weighing workforce access against cost.

The diversification of New York’s economy also insulated it from the worst of the downturn. While San Francisco’s tech concentration left it vulnerable when startups pivoted to profitability, New York’s mix of law firms, financial services, and applied AI companies kept demand more stable.

San Francisco’s Slower Path Back

San Francisco tells a different story. Rents there are up just 3.6% from the trough and remain 17.1% below 2019 levels. Marans is long on the market but noted it is roughly a year or two behind New York in its recovery.

The issue is concentration. When inflation and interest rates rose in 2023, forcing tech companies to cut burn, San Francisco absorbed the full impact. In New York, law firms and banks provided a buffer. The Bay Area’s AI boom is real, Marans said, but it is driven by a smaller set of pure-play AI companies like OpenAI and Anthropic. New York, by contrast, is attracting applied AI firms in legal tech, fintech, and marketing that benefit from proximity to diverse industries.

Series B Startups Are Paying $100+ PSF. Here’s Why.

One of the more striking trends Marans highlighted: early-stage AI startups are signing leases north of $100 per square foot in Midtown South, a rent threshold that historically belonged to Midtown trophy buildings and established tenants.

The explanation is part supply, part psychology. New development in Manhattan is at a decades-long low, and 20 to 40 million square feet of obsolete office space is slated for residential conversion. At the same time, payroll, insurance, and construction costs have all risen faster than real estate costs. For a CFO at a Series B company, office rent now represents a smaller share of total employee cost than it did five years ago, making it easier to justify a premium location.

“If I’m going to invest so much in these people, I better make sure they’re happy and looking forward to coming to work,” Mandel noted.

Sublease Expirations Could Reshape the Market

CompStak data shows that 31% of Manhattan sublease space is set to expire between 2026 and 2028. Of the sublessors still paying rent, 63% are locked in at rates above current market. Meanwhile, their subtenants are paying 25 to 30% less, often below what landlords will be able to command on a direct lease.

When those subleases roll, subtenants will likely have to relocate. They simply cannot afford the step-up to direct market rents. But Marans said landlords are not viewing this as a headwind. Many are already negotiating forward commitments on expiring sublease blocks. “They’re pretty excited to get that space back and capture that delta on market rents,” he said.

AI Is Changing the Broker-Client Dynamic, Not Always for the Better

Marans shared a recurring issue: clients using AI tools to review leases and negotiate terms, sometimes with problematic results. In one case, a 3,000-square-foot tenant in a 3-million-square-foot building demanded lobby signage rights because an AI tool told them they deserved it.

“We’re put in this position where we have to de-educate our clients,” Marans said.

On the broker side, AI is proving more useful for workflow optimization. Marans has trained Claude on years of his own writing to serve as an editor. His team uses AI to analyze email response times, flag CRM gaps, and accelerate lease reviews. But the human layer remains essential. “You do not ever want to be wrong with that,” he said of AI-assisted lease analysis. “You’ll lose a client.”

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KEY TAKEAWAYS

• New York office rents are up 28.5% from the post-pandemic trough, the strongest recovery of any major U.S. market, driven by labor pool depth and industry diversification.
• San Francisco remains 17.1% below 2019 rent levels, lagging New York by one to two years due to its concentration in pure-play AI and tech startups.
• Series B AI startups are signing $100+ PSF leases in Midtown South, a trend enabled by rising payroll and insurance costs that make real estate a smaller share of total employee spend.
• 31% of Manhattan sublease space expires between 2026 and 2028, with most subtenants unlikely to afford the jump to direct market rents.
• AI tools are creating friction in lease negotiations, with clients arriving at the table with misinformation that brokers must correct.

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Watch the full conversation between Michael Mandel and Gabe Marans on The Not Podcast Podcast to hear more on global deal-making, the future of broker outreach, and why Nashville beat out Boston for a European tech company’s U.S. expansion.