Declining Office Market Vacancy Boosted by Residential Conversions

While increased return-to-office requirements by several corporations has helped ease the high vacancies that hit the office market, another factor is helping to fuel a decline in vacancy volume — office-to-residential conversions. A recent report indicates that more than 6.5 million square feet of Manhattan’s office inventory has been taken offline over the last four years — most of them slated for residential conversions. Despite the challenges of conversion projects, the pace of office-to-residential conversions has been steadily increasing since 2021, with some industry people estimating that there was around 1.5 million square feet of conversion projects in 2022 and 2023, with 2024 activity on track to be double the square-foot volume of last year. Further fueling the uptick in conversion activity is the 467M incentive program — a “35-year tax break for office-to-residential conversions [required to include 25% affordable units] that cuts 90% off tax bills tied to buildings below 96th St” approved by New York State legislators in April; and according to a reported statement by SL Green’s Marc Holiday, “he expects 20 to 40 million rentable square feet of office space to become residential under the program.”

Metro Loft, a developer that has earned “the reputation as a leading conversion developer” accounts for more than 5 million square feet of converted buildings over the past 20 years. Since 2019, conversion projects initiated by the company include a former New York Stock Exchange building at 20 Broad Street and office buildings at 25 Water Street (formerly 4 New York Plaza) and the recently completed 55 Broad Street. Upon construction completion of all three projects, 2,424 residential units will be added to the Lower Manhattan neighborhood, and 2.074 million square feet of office space will be removed from inventory. In 2023, the doors opened to the converted former Bank of New York Mellon building at One Wall Street that now hosts approximately 565 residential condominiums within the over 1 million-square-foot property. This year, Pearl House at 160 Water Street in Lower Manhattan began welcoming its first tenants to the converted former 525,000-square-foot building that now hosts 588-unit residential units. There are several other conversions on the horizon in different phases of planning and construction; and if all move forward, will eliminate another 6,493,641 square feet of office inventory in Manhattan.