Manhattan Office Spaces Evolving into Apartments
Last year, the pace of converting office spaces to apartments in Manhattan accelerated significantly, doubling the previous year’s rate. This transformation is reshaping the character of the Midtown area, typically known for its office buildings, hotels, and entertainment spots.
Several structures on Third Street in the East 40s and 50s are being renovated, including a notable building at 135 East 57th Street on Lexington Avenue, which once stood as a symbol of the office expansion in the late 1980s. These changes are expected to inject a sense of vibrant, homely energy into a block that, traditionally, doesn’t see much activity after dark.
The conversion of 5 Times Square into 1,250 apartments by RXR might even help tone down the hectic atmosphere that usually surrounds it. This is part of a larger trend that has seen a massive increase in projects, with a recent analysis by Cushman & Wakefield indicating that 3.3 million square feet of conversions are currently in progress for 2024, compared to 1.6 million square feet last year.
The momentum has carried through since the previous New Year’s Eve, with the total reaching 4.1 million square feet by August. This wave of conversion is a response to two pressing issues: New York’s ongoing housing shortage and the age of many older office buildings.
According to Reed Hatcher, a senior research manager at Cushman, supportive policies have played a pivotal role in speeding up this shift. This includes the city’s rezoning efforts, allowing changes where previously not permitted, coupled with state-issued tax incentives designed to attract developers.
The rezoning in Midtown South last summer has already shown immediate outcomes. A partnership has acquired a 12-story building at 29 W. 35th St., with intentions to transform it into 100 studio apartments.
Market analyst Jonathan Miller from Miller Samuel mentioned that converted units are generally as appealing to renters as new constructions. “They are typically accepted much like foundational work,” he noted, acknowledging some projects may take longer to gain traction but not necessarily due to whether they involve conversion or new construction.
This movement towards conversion has contributed to a reduction in office space inventory in Manhattan, which dropped from 466.1 million square feet in the second quarter to 449.4 million square feet in the third quarter, according to Savills.
Before 2020, these conversions mainly took place in older buildings in Lower Manhattan, particularly around Wall Street, with ongoing projects like 25 Water Street, which is now home to 1,230 rental units.
Now, this trend is expanding into Midtown as well, exemplified by the former Pfizer headquarters at Third Avenue and East 42nd Street. The project, managed by Metroloft Developers and David Warner Real Estate Investors, aims to create 1,602 new rental units, marking it as the largest project of its kind in the country, complete with 100,000 square feet of amenities, including a rooftop pool.
Moreover, SL Green is developing over 600 rental units at 750 Third Avenue, featuring a winter garden due to the removal of 13 floors on one side. Simultaneously, Van Burton Group has secured a $300 million loan to convert a vacant office at 6 East 43rd Street into 441 rental units. Nearby, Rudin is planning substantial renovations at 845 Third Avenue and 355 Lexington Avenue according to filings from the Department of Buildings.
