More than 6.5 million square feet have disappeared from Manhattan’s office inventory over the last four years — with most of them slated for residential conversions.
Conversions are increasingly chipping away at the availability rate in Manhattan, according to two recent reports. Midtown had its highest level of positive absorption in the third quarter since 2005, in part because of anticipated residential conversions, according to CBRE. Downtown has had three consecutive quarters of positive absorption, despite sluggish leasing activity.
Office-to-resi conversions have been steadily picking up steam since 2021, said Franklin Wallach, executive managing director of research and business development at Colliers.
“Each year it seems to be moving at a faster rate,” Wallach said. “In 2022, it was about 1.5 million square feet. In 2023, it was a little more than 1.5 million square feet. We’re not even fully done with 2024 yet, and it’s already more than double the amount we saw last year.”
About 93 million square feet of office space remains available in Manhattan, well above the 52 million square feet on the market at the end of 2019. Companies are cutting back their office footprints in the wake of the pandemic, leaving a glut of aging office space. Meanwhile, there’s a shortage of housing.
“New York is undersupplied for new construction and modernized office buildings,” said CBRE’s Adam Foster. “If you view the average age of a building in New York City…it’s probably a good idea to recycle a lot of the inventory.”
The ailing office market is getting a boost from ambitious projects like the Brodsky Organization’s plans to convert the vacant office space in the Flatiron Building into high-end residential units; Related’s plans to convert 625 Madison Avenue into retail, a hotel and condos; and InterVest Capital Partners’ plan to turn the 1.2 million-square-foot 111 Wall Street into rentals.
“It’s a good thing for New York City, it’s certainly a good thing for Downtown,” Foster said. “Anytime you diversify the stock of buildings, you’re going to end up in a better place.”
Leases are not renewed when a building is slated for conversion, so available space does not hit the market as leases expire. Owners eyeing conversions are not renewing leases or halting leasing campaigns in anticipation of selling, Foster said.
While conversions have typically taken place in downtown neighborhoods, they’re now reaching every corner of the Manhattan market — even stodgy Midtown, where SL Green plans to turn 750 Third Avenue into about 540 apartments, while RXR and SL Green are eyeing a potential office-to-residential conversion at 5 Times Square.
“I think the city is transforming and it will be a better city when these buildings are converted,” said Colliers’ Michael Cohen. “The impact on Downtown has been extraordinary over the last several years, but it’s going to have a profound impact on Midtown as well.”
Cohen said he expects conversions to continue to accelerate, especially if the Adams administration’s quests to rezone parts of Midtown South and pass the City of Yes for Housing Opportunity succeed.
“We’re going to see some very creative approaches over the next few years,” Cohen said. “I wouldn’t be surprised if the total runs into the tens of millions of square feet. This is a very hot topic right now.”
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