After two years of contraction, capital is returning to the office sector — but only for its best performers. Leasing in premier towers has surged to two-decade highs, while secondary space sits vacant. A “flight-to-quality” has split valuations: trophy buildings attract multi-billion-dollar trades and refinancing, yet older assets face mounting restructurings. The result is a market where capital is both back and biased — a discipline-led recovery rather than a broad rescue.

Deloitte, Salesforce, and other corporates have anchored new leases in top-tier space, pushing NYC office leasing to a 20-year peak. Class A rents in select submarkets now exceed pre-pandemic records, while Class B/C assets trade at steep discounts — one Midtown tower sold 57 % below its 2019 valuation. This bifurcation has redrawn the pricing map for office capital. In turn, investors are redefining “core” as buildings that prove tenant stickiness through design, infrastructure, and location.

Institutional money is testing the bottom. RXR and Elliott’s $1.1 B acquisition of 590 Madison and Norges Bank’s $572 M partnership on 1177 Avenue of the Americas anchor a sixfold jump in cross-border office investment to $0.9 B last quarter. Even so, buyers are underwriting with higher cap rates and lower leverage. Meanwhile, debt funds and insurance capital are re-emerging for stabilized assets but demanding equity co-investment and cash flow proof. As a result, prime office yields are tightening while everything else reprices.

Fosun International’s $900 M refinancing of 28 Liberty Street after raising occupancy to 93 % illustrates the new credit hierarchy. Top sponsors with leased-up collateral see spreads narrow by 25–50 bps since the Fed began easing, freeing refi capacity at major banks and CMBS shops. Conversely, loans on half-empty or obsolete offices require reserves or partial recaps. Still, loan modifications (+66 % YoY) remain only 1.5 % of bank CRE exposure, suggesting distress is contained and managed through extensions rather than defaults.

Despite headlines, office credit stress remains orderly. Roughly 72 % of 2025 CMBS office loans are paid off or refinanced, with another 23 % resolved via extensions. Only ≈5 % sit past maturity — a small share versus historic averages. Vacancy even ticked down nationally for the first time since 2019, helped by adaptive reuse and supply halts. Public office REITs have rallied ≈35 % from 2023 lows, implying capital believes the worst is priced in. Still, workouts will define 2026 as legacy debt cycles through the system.

City and federal policy are aligning around conversion. New York’s pro-housing administration plans to streamline office-to-residential approvals in 2026, echoing pilot programs in Chicago, DC, and San Francisco. With spec office starts paused outside build-to-suit projects, supply discipline will aid pricing repair. Cap rates are plateauing (6–8 % for Class A, 8–12 % for B/C), and patient capital is accumulating dry powder to buy the rebound. Ultimately, the sector’s recovery hinges on execution — leasing, conversion, and credit control over speculation.

CRE lenders describe the office market as “disciplined, not distressed.” Fed policy now anchors financing costs near 4 %, and refinancing volume is expected to rise through mid-2026 as clarity improves. The next wave of stabilized towers should attract insurance and foreign capital seeking 8–9 % unlevered returns in gateway markets. For secondary assets, repurposing will replace refinancing as the exit strategy. The new cycle will reward discipline over risk — a re-pricing of value rather than a return to volume.