Answer extracted from the Coffee & Cap Rates: Commercial Real Estate Podcast — listen to the full episode below.
Which office asset classes led commercial real estate returns in the first half of 2026?
Three office categories dominated performance in H1 2026: Class A office space led with 23 million square feet leased, while Class B repositioned assets and office-to-residential conversions captured strong investor demand, driven by institutional buyers seeking premium amenities and high-quality tenancy.
Class A office anchors the market recovery
Class A office space captured institutional capital through a compelling combination of tenant quality and lifestyle integration. The 23 million square feet leased in the past six months primarily attracted high-end law firms, financial institutions, and technology companies seeking integrated experiences that combine office, hospitality, and quality-of-life amenities.
This performance reflects a selective capital deployment strategy. As explained in this episode of Coffee & Cap Rates, investors are targeting reset valuations aligned with fundamentals and policy support, rather than chasing yesterday's market narratives.
Repositioned and conversion assets unlock new value
Class B office buildings undergoing repositioning and office-to-residential conversion projects represented the second tier of strong performance. These assets appeal to investors willing to execute value-add strategies rather than simply hold existing stock.
The pipeline reflects genuine structural demand: 16,000 units are currently in office-to-residential conversion across the city, with 65 such transactions completed over the past two years. Conversion economics work when underlying office fundamentals deteriorate but real estate values and locations remain strategically sound—a calculus that favors Manhattan's premier addresses over secondary markets.
"Capital is investing in reset valuations, in fundamentals that are growing, in policy alignments. When all of those don't exist, capital is looking for distress and basis."
Shimon Shkury — Principal at Ariel Property Advisors. Shkury specializes in New York City commercial real estate investment sales across multifamily, office, and retail sectors. He has led numerous high-value transactions including Section 8 affordable housing projects and office-to-residential conversion deals throughout Manhattan, bringing direct market expertise to the strategic deployment of institutional and private capital.
The broader context reveals why office selectivity matters: the entire New York City market recorded $17.4 billion in investment sales transactions in H1 2026, a 37% year-over-year increase. Within that, office performed only when it met three criteria—valuation reset, strengthening fundamentals, or conversion optionality. A deeper look at the full episode explores how specific deal structures like the Columbus Square transaction reveal different investor risk profiles within the same asset class.
See also
How much value have rent-stabilized apartment buildings lost compared to their 2018 peak?
Rent-stabilized buildings that traded in the past six months show an average discount of 63% compared to their previous trading prices, reflecting the structural misalignment between rent control and operating costs.
What structural challenges affect rent-stabilized multifamily housing in New York City?
Rent-stabilized multifamily faces severe misalignment: rents are locked at low levels with no ability to increase through subsidies or tax abatements, while the Rent Guideline Board holds rent growth at 0%.
How do free market multifamily valuations compare to peak prices, and what has happened to rents over the same period?
Free market multifamily buildings are trading at an average of 16% below peak valuations, while rents have grown by almost 60% over the past six years—a compelling value proposition for institutional buyers.
Key takeaways
- Class A office dominated office market performance in H1 2026, with 23 million square feet leased to premium tenants seeking integrated office-hospitality-lifestyle environments.
- Class B repositioned and office-to-residential conversion assets captured second-tier demand from value-add and conversion-focused investors.
- Capital deployment in office remains highly selective, targeting reset valuations, growing fundamentals, and policy support rather than distressed bulk transactions.
- The 16,000-unit office-to-residential conversion pipeline reflects structural demand when location and real estate value justify repositioning economics.