Vornado Realty: Assessing the Attraction of Manhattan Office Assets in a Post-Pandemic Era

The Manhattan office real estate market has entered a pivotal phase in 2025, marked by a confluence of post-pandemic recovery, technological disruption, and strategic repositioning by major players like Vornado Realty Trust. For value-driven investors, the interplay of these factors presents a compelling case for evaluating Vornado's Manhattan portfolio through the lens of earnings resilience, occupancy dynamics, and alignment with high-growth sectors such as artificial intelligence (AI).

A Market Reawakening: Leasing Momentum and Structural Shifts

Manhattan's office market has shown robust recovery in Q3 2025, with leasing activity hitting 7.3 million square feet-a 37.6% year-over-year increase-and vacancy rates falling to 22.0%, the lowest since April 2023, according to a Cushman & Wakefield report. Class A asking rents have surged to $81.89 per square foot, driven by demand from tech, financial services, and AI firms, the Cushman & Wakefield report notes. This trend is underpinned by a near-historic low construction pipeline (3.2 million square feet under development), which limits new supply and supports rent growth, according to a Transwestern report.

The AI sector, in particular, has emerged as a key driver. By Q3 2025, AI-focused companies had leased 486,000 square feet in Manhattan, surpassing 2024's total and nearly doubling 2023's volume, according to a Credaily briefing. Smaller AI startups are gravitating toward flexible, short-term leases in Class A-minus and B-plus properties, while larger firms like OpenAI and Salesforce are expanding in high-performance spaces, the Credaily briefing notes. This shift reflects a broader redefinition of office value: AI firms increasingly view physical collaboration as essential for innovation, even in a digital-first world, the Credaily briefing notes.

Vornado's Strategic Positioning: Earnings Resilience and Portfolio Optimization

Vornado Realty Trust has capitalized on these dynamics through a combination of strategic acquisitions, redevelopments, and asset sales. In Q3 2025, the company reported a net income of $11.6 million (or $0.06 per share) and FFO of $0.58 per share, outperforming 2024's results, according to a Seeking Alpha article. A $803 million gain from the 770 Broadway master lease with NYU and a $76 million net gain from the 666 Fifth Avenue sale to UNIQLO significantly boosted earnings, the Seeking Alpha article notes.

The company's Manhattan portfolio now boasts an 87.5% occupancy rate, with the office segment hitting 88.4%, according to a Vornado investor release. High-profile leases, such as Verizon's 200,000-square-foot headquarters and FGS Global's new tenancy, underscore Vornado's ability to attract creditworthy tenants, the Commercial Observer notes. Moreover, Vornado's redevelopment of 623 Fifth Avenue-a $218 million acquisition-positions it to capitalize on Manhattan's premium office demand, with plans to transform the property into a "premier office building," the Seeking Alpha article notes.

Tech/AI Alignment: A Tailwind for Long-Term Value

Vornado's tenant composition increasingly reflects the post-pandemic demand for tech-enabled workspaces. While exact percentages for AI tenants are not disclosed, industry data indicates that 54% of AI leasing in Manhattan is concentrated in Class A buildings, according to the Credaily briefing. Given Vornado's focus on premium assets like Midtown South properties, it is well-positioned to benefit from this trend. For instance, the Puck Building's 90,000-square-foot lease to OpenAI and 3 Bryant Park's expansion by Salesforce highlight the company's alignment with AI's growth trajectory, the Credaily briefing notes.

The strategic value of Vornado's portfolio is further amplified by its low vacancy rates and projected rent growth. Management anticipates 20-25% rent increases over the next 4-5 years, driven by constrained supply and sector-specific demand, the Vornado earnings call notes. This aligns with broader market forecasts, where Manhattan's net absorption has remained positive for five consecutive quarters, the Transwestern report notes.

Risks and Considerations

Despite these positives, investors must weigh risks such as economic volatility and potential shifts in remote work trends. However, Vornado's diversified tenant base-spanning finance, tech, and AI-and its proactive approach to redevelopment mitigate these concerns. The company's recent asset sales (e.g., 512 West 22nd Street) also provide liquidity for strategic reinvestment, enhancing long-term value, the Seeking Alpha article notes.

Conclusion: A Compelling Case for Value-Driven Investors

Vornado Realty Trust's Manhattan portfolio exemplifies the intersection of structural market recovery and sector-specific innovation. With occupancy rates near record highs, a strong leasing pipeline, and a strategic focus on AI-driven demand, the company offers a compelling value proposition for investors seeking exposure to a resilient, high-growth asset class. As Manhattan's office market continues to evolve, Vornado's ability to adapt-through redevelopments, tenant diversification, and capital discipline-positions it as a key player in the post-pandemic real estate landscape.