Stay informed with free updates
Simply sign up to the Property sector myFT Digest — delivered directly to your inbox.
Developers are converting offices in Manhattan into apartments at the highest rate in almost two decades as they turn to underused buildings to help plug demand for housing in New York City.
Construction to convert office buildings into residential ones has begun on 4.1mn rentable square feet in Manhattan this year, the most since 2008, when there were 4.8mn square feet of conversions, according to data from commercial property services firm Cushman & Wakefield.
“Residential conversions have emerged as one of the most notable shifts in New York City’s real estate landscape since the onset of the pandemic,” said Reed Hatcher and Lori Albert, the report’s authors.
Although financial difficulties and zoning restrictions meant such projects were not always possible in previous years, “recent policy changes and a renewed focus on housing supply have paved the way for accelerated activity”, they added.
There is an acute shortage of housing in New York, with the vacancy rate in Manhattan multi-family homes at approximately 3 per cent, according to real estate data group CoStar. Older office buildings that are “functionally obsolete in some ways” are being used to help take care of the housing crisis, said Jared Koeck from CoStar.
One conversion in Manhattan is the Flatiron building, which is set to house luxury condominiums. The former Pfizer headquarters in Midtown is also in the process of being converted and will be the largest conversion in New York’s history when it is completed.
Cushman & Wakefield’s data suggests that, while New York’s Downtown, home to the city’s financial district, dominated conversion activity between 2004 and 2019, Midtown is now in the lead. Between 2020 and today, the area best known for Times Square and Grand Central Station has represented 54.8 per cent of all conversions, versus 35.5 per cent in Downtown.
Hatcher and Albert predict that the office-to-residential conversion trend is set to intensify, with 8.8mn square feet of conversions across 25 properties currently proposed in Manhattan. But it is not certain that all of these planned conversions will be carried out.
“I think we’re running out of runway for more, especially in Manhattan,” when it comes to older office buildings that can be turned into residential ones, said Koeck. “Most of the low hanging fruit has been picked.”
