Artificial intelligence and technology companies have been driving demand for office space in Manhattan during the second quarter of 2026, helping to soften the city’s post-pandemic sublease glut, according to preliminary second-quarter data from JLL. 

Manhattan’s sublease inventory has fallen below 11 million square feet, according to JLL, a steep drop from the late-2022 peak of approximately 23 million square feet of sublease space available. That decline is the result of an increase in leasing activity by AI companies, JLL found (although law firms have taken a rather large chunk of space so far in 2026 as well). 

So far this year, AI firms have signed 21 deals totaling 719,200 square feet in Manhattan, a number that is on track to overtake last year’s total of 845,000 square feet. About 70 percent of the leases signed were in the Midtown South market, which is evolving into a “tech and innovation core” in the city. 

Some of those Midtown South deals included AI sales platform Clay relocating to 163,095 square feet at 11 Madison Avenue in March and AI-driven advertising firm Agentio taking 20,000 square feet at 295 Fifth Avenue, also in March.

“Manhattan’s office market gained momentum throughout the second quarter as demand continued to concentrate in high-quality space,” Jamie Katcher, executive managing director at JLL, said in a statement. 

“The most notable development is how quickly the sublease overhang has been absorbed,” Katcher added. “Growth from AI firms, as well as financial services companies and law firms, is driving long-term leasing decisions, while landlords are increasingly pulling back available sublease space to pursue direct deals at substantially higher rents.”

Overall, office availability across Manhattan dipped by 50 basis points to 12.7 percent on a quarter-over-quarter basis, according to JLL’s data, meaning there was about 2 million square feet less space available in the second quarter than in the first three months of the year. 

In June alone, overall leasing volume in the borough reached 1.1 million square feet, while 17 million square feet have been leased year-to-date. The average asking rent for office space in Manhattan was $84.23 per square foot in the second quarter. 

Amanda Schiavo can be reached at aschiavo@commercialobserver.com.