The Real Deal New York

Developers question condo conversions as office demand rises

Class B and C space shrinking as tech and creative firms seek space
July 14, 2014 11:30AM

An influx of tech startups and creative firms is making developers think twice before converting office space into condos.

Whereas condominium and hotel conversions once commanded bigger returns, the growing demand for Class B and Class C office space — which is being fueled by high growth companies — has changed that calculus, the Wall Street Journal reports.

“The office market is starting to gain enough momentum in the next couple years where we’re going to see office market become a better value than residential conversion,” Josh Kuriloff, a senior broker at Cushman & Wakefield, told the paper.

At the same time that demand for affordable office space is growing, supply is shrinking. The amount of Class B and C space could fall by 7.8 million square feet through 2025, according to an Economic Development Corporation report.

The average asking rent for offices in these classes is up five percent from a year ago to $45.93 per square foot, and up 15 percent from 2010, according to Reis Inc. data cited by the paper. [WSJ]Tom DiChristopher