Vornado (VNO) Q3 2025: Manhattan Office Rents Jump 16% as Leasing Surges Past Decade Highs

November 4, 2025 | By EarningsIQ Research

Vornado’s Manhattan office portfolio is riding a historic demand surge, with rents and leasing activity both outpacing peers and prior cycles. Leasing momentum, asset repositioning, and balance sheet discipline are converging to set up a multi-year earnings inflection, even as 2026 guidance remains cautious. Investors should watch for the timing of non-core asset sales and the pace at which signed leases convert to income, as the next leg of growth hinges on these execution milestones.

Summary

• Manhattan Office Rents Reprice Upward: Vornado’s average starting rents soared, with Q3 deals at $103 per foot and mark-to-market up 16%.
• Leasing Pipeline Signals Multi-Year Growth: Signed but not yet commenced leases exceed $200 million in future annual income, priming 2027 for a sharp earnings ramp.
• Balance Sheet Strength Enables Flexibility: Liquidity now stands at $2.6 billion, supporting both deleveraging and opportunistic investment.

Performance Analysis

Vornado’s Q3 results underscore a decisive shift in Manhattan’s office market from a tenant’s to a landlord’s market. The company executed 594,000 square feet of New York office leases at an average starting rent of $103 per square foot, with mark-to-market increases of 15.7% on a GAAP basis and 10.4% on cash. The average lease term exceeded 12 years, and leasing activity was broad-based across industries and asset types.

Occupancy in the New York office portfolio rose to 88.4%, driven by major deals at Penn 2, including Verizon’s 200,000 square foot headquarters lease. Same-store GAAP net operating income (NOI) for New York was up 9.1%, though cash NOI was down 7.4% due to free rent and ground lease adjustments. The signage business, a high-margin revenue stream built on Vornado’s unique control of Times Square and Penn District assets, delivered record results and is on track for its best year ever.

• Manhattan Office Leasing Volume: 2.8 million square feet leased YTD, with Vornado leading both in volume and starting rents among New York peers.
• Penn District Occupancy: Penn 2 now 78% leased, on track to exceed 80% by year-end, while Penn 1 has leased 1.6 million square feet since redevelopment began.
• Signage Revenue Expansion: The signage business continues to compound at a 4% to 5% annual rate, with new signs offering rapid payback and perpetual control driving margin leadership.

While Q3 FFO per share beat consensus, management’s tone was notably measured on the near-term outlook, as the timing of income recognition for signed leases and the impact of non-core asset sales will keep 2026 earnings flattish before a projected surge in 2027.

Executive Commentary

Strategic Positioning

1. Manhattan-Centric Focus and Portfolio Quality

Vornado has doubled down on its 90% Manhattan prime pitch strategy, concentrating capital and management attention on the highest-demand submarkets. This focus is yielding industry-leading leasing metrics and positioning the company to capitalize on the acute supply-demand imbalance for Class A space.

2. Penn District as a Multiyear Growth Engine

The Penn District, Vornado’s “city within a city,” is now a proven growth catalyst. Leasing at Penn 2 and Penn 1 is exceeding both original and revised underwriting, with occupancy ramping and rents moving higher each quarter. The company is also advancing new development projects, including the 350 Park Avenue tower (anchored by Citadel) and a 475-unit residential building, further diversifying the district’s income profile.

3. Asset Repositioning and Capital Recycling

Vornado’s acquisition of 623 Fifth Avenue—75% vacant and slated for redevelopment—demonstrates a willingness to pursue high-upside, value-add opportunities. The company is budgeting a 9% yield on cost, targeting double-digit returns, and expects to deliver the asset at half the cost and time of a ground-up build. Meanwhile, non-core asset sales and selective retail redevelopment will both fund growth and support balance sheet deleveraging.

4. Signage Platform as a Unique Margin Driver

The signage business, built on perpetual control of premier digital and static signage in Times Square and the Penn District, provides Vornado with a high-margin, defensible ancillary income stream. New sign installations offer rapid payback, and the company retains flexibility to market these assets in customizable packages to tenants and advertisers.

5. Balance Sheet Optimization and Capital Flexibility

With $2.6 billion in immediate liquidity and a net debt to EBITDA ratio down to 7.3 times, Vornado has created ample financial flexibility to both weather market volatility and seize new opportunities. The company’s proactive refinancing and cash build-up have left key assets unencumbered, preserving value optionality for future cycles.

Key Considerations

This quarter’s results and commentary reflect a company operating from a position of strength, but facing complex execution and market timing questions as it transitions from leasing momentum to earnings realization.

Key Considerations:

• Pace of Lease-Up Conversion: The timing of when signed leases commence and begin generating income is critical, with most of the $200+ million pipeline hitting in 2027 and beyond.
• Visibility on Non-Core Asset Sales: Management expects at least $250 to $300 million in dispositions in 2026, but the magnitude and timing remain uncertain, impacting near-term earnings and capital deployment.
• Rent Growth Elasticity: Management and leasing teams expect cumulative rent growth well above peers’ 20–25% forecasts, citing supply scarcity and tenant willingness to pay, but sustained pricing power will depend on broader macro and corporate demand trends.
• Retail and Mixed-Use Redevelopment: The plan to modernize inherited retail along 34th Street and 7th Avenue is intended to elevate the Penn District’s value, but execution risk remains around tenanting and market absorption.
• Interest Expense and Capitalized Interest Dynamics: While most capitalized interest related to Penn 2 will burn off in 2026, new projects like 623 Fifth will add back, and overall interest expense is expected to remain flat or improve with deleveraging.

Risks

Execution risk remains high as Vornado seeks to convert signed leases into income and deliver on major redevelopment projects amid macro uncertainty. Non-core asset sales could be delayed or priced below expectations if capital markets tighten. Regulatory and legal disputes, such as ground lease litigation and Penn Station transformation, add further complexity to future cash flows and asset values. Tenant demand, while robust now, is subject to shifts in corporate office strategies and broader economic cycles.

Forward Outlook

For Q4 2025, Vornado expects:

• Continued occupancy gains in New York office, targeting low 90% range over the next year.
• Further leasing progress at Penn 2, with year-end occupancy set to exceed 80%.

For full-year 2026, management maintained guidance:

• Comparable FFO expected to be flat to slightly higher versus 2025, reflecting asset sales and income timing.

Management highlighted several factors that will shape the next twelve months:

• Most income from recently signed leases will not materialize until late 2026 or 2027, delaying the earnings inflection.
• Asset sales and retail redevelopment will temporarily take income offline, but are expected to drive higher returns in future periods.

Takeaways

Vornado is executing on a textbook high-quality urban office strategy, but the translation of leasing wins into earnings growth will not be linear.

• Leasing Surge Sets Stage for 2027 Earnings Ramp: The $200+ million signed-not-open pipeline is a powerful forward indicator, but investors must bridge the gap until these leases commence.
• Balance Sheet and Asset Optionality Remain Strategic Advantages: Liquidity and deleveraging progress give Vornado the flexibility to fund growth, pursue accretive acquisitions, or return capital as opportunities arise.
• Watch for Signs of Market Saturation or Tenant Pushback: While current rent growth is robust, sustained pricing power will be tested as more supply comes online and corporate office needs evolve.

Conclusion

Vornado’s Q3 marks a clear turning point for Manhattan office fundamentals, with rising rents and record leasing activity underpinning a bullish long-term outlook. However, the path to outsized earnings growth will require disciplined execution on asset sales, development, and lease-up conversion, making timing and capital allocation the critical watchpoints for investors.

Industry Read-Through

Vornado’s results provide a high-conviction read-through for the broader New York City office market: Class A landlords with well-located, amenitized assets are regaining pricing power as supply tightens and tenant demand broadens. The shift from a tenant’s to a landlord’s market is now visible in both rents and lease terms. Investors should expect continued bifurcation between prime and commodity office, with capital and tenant preference consolidating in the hands of operators who can deliver scale, flexibility, and experiential environments. The signage and retail redevelopment plays also signal that ancillary income streams and mixed-use placemaking are becoming increasingly material to the urban office value proposition.

VNO Real Estate Office Urban Redevelopment Leasing Signage Manhattan Asset Sales