By Peter Grant

The neighborhood surrounding Manhattan's Penn Station is notorious for its grime, panhandling and claustrophobic train station. New York Gov. Kathy Hochul called the station a "hell hole."

But the area is improbably emerging as one of the hottest office markets in New York City.

New tenants are flocking to the Penn Station area, including Major League Soccer and Dick's Sporting Goods. The neighborhood's rising occupancy rates and rents reflect New York's strength as the nation's leading office market, as well as the growing premium on proximity to transportation hubs for workers increasingly opposed to extensive commutes.

A wave of new development around Penn Station, led by $Vornado Realty Trust(VNO-N)$'s upgraded and improved towers above the station, is also helping fuel demand. The developer added a new fitness center with pickle ball courts, a sushi and steak restaurant, and a 17,000-square-foot rooftop park.

The neighborhood, along with the Hudson Yards and Manhattan West developments a few blocks away, has captured nearly 25% of all office relocations between 2023 and 2025. That is the largest of any district in the city, according to Cushman & Wakefield.

Robinhood Markets recently took more than 120,000 square feet at Vornado's Penn 2 project, a major expansion from its roughly 45,000-square-foot office in Manhattan's Meatpacking District. Being right next to main transportation lines figured prominently in the decision.

"Easy access from across the region is a real advantage," a Robinhood spokeswoman said.

Now, federal government plans for a sweeping overhaul of the aging train station could further boost interest in the area.

Three development teams submitted final proposals last month to Amtrak, which is leading the process to select a master developer. A decision from the Trump administration is expected within weeks on the project, estimated to cost $7 billion to $10 billion.

Skepticism that any upgrade to the station will actually happen runs deep. A succession of mayors and governors have unveiled plans to fix Penn Station, only to see them falter amid political fights, funding gaps and shifting priorities.

But some who have worked on the problem for decades are more optimistic. They point to new leadership overseeing the process with a record of delivering large transit projects and indications from the Trump administration that billions of dollars could be available.

"I think this is by far the most serious effort and the most likely to succeed," said Tom Wright, chief executive of the Regional Plan Association, who has been working on Penn Station issues for roughly three decades.

The original Pennsylvania Station, a grand beaux-arts masterpiece completed in 1910, was demolished in the 1960s to make way for the current Madison Square Garden-topped complex -- a move that shocked the public and spurred the modern historic preservation movement.

The cramped underground station has been a drag on the surrounding district, weighing on the appeal and value of nearby office buildings. By contrast, properties clustered around stately Grand Central Terminal have commanded some of the highest rents and strongest demand in the city.

In 2021, Moynihan Train Hall opened across the street from Penn Station, with soaring ceilings, natural light and expanded passenger space. While the hall was hailed as a major step forward, it mostly serves Amtrak and not the Long Island Rail Road and NJ Transit commuters that make up the bulk of the station's more than 600,000 passengers on a typical weekday.

About the same time Moynihan Train Hall opened, Vornado moved forward with a roughly $1.2 billion effort to redevelop the office towers above the station. The gamble by one of Manhattan's biggest office landlords looked risky at the time. The pandemic was still raging and doubts were growing over whether workers would ever fully return to offices.

But Vornado chose to bet on the district's future. The company owns more than a dozen properties and millions of square feet of office space around Penn Station. It also owned the former Hotel Pennsylvania across from the station that it razed, leaving Vornado with a major redevelopment site in the district's center.

Vornado's gamble is now paying off. Leasing has become so strong at the redeveloped towers that the buildings could be nearly fully leased by year-end. Rents are also running into the $130 per-square-foot range, well above the roughly $95 to $100 the company had originally projected.

"It's been a really great run," said Glen Weiss, who heads leasing for Vornado, "and the most important thing is they're coming from all over town."

Still, it remains unclear how durable Manhattan's office resurgence will be given economic uncertainty and the prospect that artificial intelligence could reduce office employment.

The Penn Station area hasn't been immune. Verizon Communications is trying to sublease nearly 200,000 square feet at Penn 2, only months after leasing the space, as the telecommunications giant re-evaluates its office needs amid broader cost-cutting and layoffs.

The most ambitious proposal for a new Penn Station would relocate Madison Square Garden across Seventh Avenue to the now-cleared former Hotel Pennsylvania site and replace it with a grand new train hall. But the plan is also viewed as a long shot because it would require the support of MSG owner James Dolan, the billionaire who has long resisted efforts to move the arena.

Another would keep the Garden largely in place while carving new entrances into the complex, raising ceilings and bringing more natural light into the underground maze. A third group has revealed little publicly about its plans.

"Even if we have sort of the same crappy Penn Station for another 25 years, there still is some pretty significant revitalization coming to the area," said Dylan Burzinski, analyst with real-estate advisory firm Green Street.

Write to Peter Grant at peter.grant@wsj.com

(END) Dow Jones Newswires

May 12, 2026 05:30 ET (09:30 GMT)

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