Office Conversions on the Rise

As reported on Thursday, the trend of converting offices into apartments is becoming increasingly prominent across the United States.

Data from CBRE Group indicates that by the end of 2025, 23.3 million square feet in the 58 largest U.S. markets will be repurposed, while only 12.7 million square feet of new office space will be constructed.

In New York City, the situation appears even more drastic, with significant losses in office spaces due to these conversions.

CBRE suggests that if all conversions currently in the pipeline or planned by the end of 2024 are completed, about 16.5 million square feet, or 3.9%, will be taken out of Manhattan’s overall office inventory.

This shift could lead to a perception of strength in the office market by reducing vacancy rates. For owners of older buildings who can manage the costly conversion process, this is positive. Yet, the reduced supply may push rents higher, negatively affecting tenants.

Through our observations, it’s clear that some trends are gaining traction.

The wave of conversions has now spread from the Wall Street area to Midtown.

This year, five projects in Times Square are set to begin, with firms like RXR, SL Green, and Apollo Global Management converting them into 1,250 rental apartments. One such project, once home to Ernst & Young, is now largely vacant.

Meanwhile, Metro Loft developers along with David Werner Real Estate Investors are busy transforming the former Pfizer headquarters on Third Avenue and East 42nd Street into 1,602 apartments.

Downtown, at 25 Water Street, GFP Real Estate and Metroloft are completing 1,230 rental apartments, with tenants moving in soon.

Many of these conversions are either finished or progressing rapidly.

In contrast, most new office projects are still ongoing, with the exception of the JPMorgan Chase headquarters, which spans around 2.5 million square feet.

The most promising development seems to be the 70 Hudson Yards project, covering 1.1 million square feet with Deloitte potentially as a tenant.

Other office projects are caught in the limbo of “maybe” or “someday.”

BXP, previously a Boston property, has plans for a 950,000-square-foot tower at 343 Madison Ave., but it’s yet to secure tenants or begin construction.

In the meantime, BXP is also constructing a new glass entrance at Grand Central Terminal.

Moreover, the Hudson Boulevard 3 project by BXP and Moinian hasn’t seen significant progress; a default on an $80 million loan has stalled progress as they seek new financing, according to reports.

Vornado, Rudin, and Ken Griffin’s towering projects are still in the review phase and won’t be realized for quite some time.

Additionally, the 175 Park Ave. project, which includes the Grand Hyatt Hotel site at East 42nd Street, is seeking a hefty $4.844 billion federal loan to move forward.

In another study, CBRE noted that recent conversions have already removed 15.5 million square feet of office space from the market.